Question

Price ($) 320 200 - ATC 2) Monopolistic Competition II (7 points) The graph to the right shows cost curves, demand, and marginal revenue for a popular cell phone producer in a monopolistically competitive market. a. What is the firm's profit maximizing output level? b. What price will the firm charge? C. Suppose the firm produces in the short run. Will it earn a profit? How do you know? d. What is the firm's profit (or loss) per-unit? e. What is the firm's total profit (or loss)? Label this area on the graph. f. What will happen to this industry in the long-run? [List the specific steps that will lead to the long-run outcome.] 120 80 401 1020 30 40 50 60 70 80 90 Smart phones (millions)

Answer 1

E e ( 6 Profit maximizing output MR=mc 8 = 30 units. profit maximizing Price = 8210 Price is less than Average lost (AC) PLAC rence from is suffering loss. Firm Loss - 30x (220-210) - 30x10 In - $300 e 220 210 Toss, 3D Over the long run, All firms get only normal profit. Thus, there will be exit of few firms and price would rust Eventually price would settle at P=AC