Question

gure I represents a monopolistically competitive firm. Use the prepleto answer the following questions 2 Wha t will the form proce! 2. is this form in the short run or the long run? Why? " How much economic prott is this from matang? s comparathas fom to a perfect compettorin repedste price, output, and efficiency. Structures from Monopol

Answer 1

The monopolistically competitive firm produce where the marginal cost equals the marginal reveneue of the firm.

a). The price will be at 5.5.

b). The quantity of outrun.57.5.

c). The average total cost is below the price of the product which means the firm is earning a positive economic profit. The monopolistically competitive firm earns positive profits in the short run and zero economic profits in the long run.The firm is producing in the short run.

d). Economic profit

$=\left ( 5.5-4 \right )57.5$.

  $=86.25$.

d). In the perfect competition the price equals the marginal cost of the production. They also produce where the marginal revenue equals the marginal cost of the production. The output is higher in the perfect competition and the price is lower. While in the monopolistic competition the price is higher which is above the marginal cost and produce little output. The perfect competition is allocatively and productively efficient and the monopolistic competition which is not.

The second graph is a perfect competition, this is because the demand is a horizontal straight line.

a)Perfect competition.

2. The firm is break even, that is the total revenue is exactly equals to total cost. This is where the price equals the average total cost.

Ans: Break even.

3. The firm is long run equilibrium, in the long run the firm earns zero economic profit.