Question

Graph Worksheet MC DI MR P4 ATC P3 P2 AVC PI 02 1. What is the price and quantity at the optimum level of production? Is this an economic profit, loss, or break-even? Should the firm produce? 2. If the industry model is monopolistic competition, what will happen to the industry? What will happen to the demand and marginal revenue curves for the individual firm? In the long run where will the demand curve be? Will the firm achieve productive and/or alocative efficiency? 3. Ifthe industry model is monopoly, what will happen to the industry? Will this firm achieve productive and/or allocative efficiency? Assume that the govemment regulates the firm. What price and quantity would result if they were regulated using the socially optimal option? Is this an economic profit, loss, or break-even? Should the firm produce?

Answer 1

Answer: from the given graph. W price and quantity of optimum level of production and then Profit I loss ( Breakeven economy and firm should produce or not: the firm mR=mc, → At the optimum level of production of thus optimum quantity produced is equal to oa and at this quantity optimum Price level is equal to ory": This is an economic profit because price exceeds! ATC CP2 ATC) of production. yes, the firm should produce. (2) If industry model is monopolistic competitim then: If it is monopolistic competitive model then new firm will enter the industry because existing firms are earning sopes Normal profits.

• Change in demand and marginal revenue comes for the individual firm: tere demand and marginal revenue come will shift inwards. • In long sun the demand one will be: Here in long den demand are will shift leftwards as. compared to previous graph. fim will achieve productive av allocative efficiency: Since price in monopolistic competitim remains higher than minimum ATC, thus it is not productively efficient! "The monopolistic competition also does not achieve allocative because price is higher than marginal cost of production, 3 If industry is monopoly then In case of monopoly the firm will continue eaming

Supes normal profits because of no free entry and exit of another firms in industry. firm achieve productive or allocative efficiency: "No" monopoly does not result in production and the allocative efficiency. Government regulates the firm, then price and quantity are: using the social optimal option, the government will Set the price equal to Average total cost (P = ATC) is 8a, Economic profit loss, or breakleven: . for fim This will lead to zero profits fim should contine production: yes"