Question

glap IU LA Pill Wily LCIUIS TU UUUUW NVS U RSS PIUM. Use u c. Draw a monopolistically competitive firm in long-run equilibrium. Explain why the firm is not allocatively efficient or productively efficiency. Define excess capacity and identify it on the graph ( 15)

Answer 1

LRMC Poreucas Denducyt MC LRAC Pm Lonn Pc Pt ARL mR उ८ MRu Om Cutput LONG RUN EguILIBRIUM MONOPOLISTIC oF MONOPOLISTICALLY ComPETITION Com PETITVE FIRM In the menepalisticaly competitine frm wil whese t interseck rl te Leng un a the amount af gotds cost (LRMC) CMR) he Prie and and Se, espechicely long aun Cunie magihal antily y set revenue is Pirduchine hcieny is wten fims set the products pnie equal to magaal cost, ustuih also otal costlu a tte menepeishe cempehhice great than theis pduch eage market, tims aluays set tha rice wuch means the masket can nevel be marginal osts

preduchiveley hand teee afeas Level tat preducti pnce wtuich is also equal to tue Allocahue haduca T oceuss wen a wlen 0ceurs at Soual welase maxinises equals is ducts nmasginal cots Again since a enepetishe cenpetihice masket exceds it MC be allcatiety eft the maskat Can nenes ExcESS CAPACITY Excen capatty epinaum) autput and tae oautput achally atained in tt is betueen ideal tthe deined as run hefirms opeiata attu peint en the falling porhon LRAC iey hy reduce the lesel of output where the LRAC is minimum LRMC LRAC do not Piu qutibriun f frm unde monopelish compehten s aciened when the dumand run a i becemes to he leng pcing tangentiat auatnge MRL AR= DL culue 6 un So tat E easus cosh cusue ly nenepedisticnly co ie Undes firm wiu net prduce te socially ophuuim leiel of quaniy will preduce less quantity than that as ant to past auay Such urtunstances, a itdaes ust witt t

achial lang undes monepeliste cempetiten fala autput The amount oututf hort wtu'cle thee n ideal Sauially capacity wlcl means et excun is the a meaatee apacity' unuhilised ON is the socially ideal outpeut Dulput preduced by the firm The Fa Cc) OM is the Paonepatiticalily tempentine As excess capacity is, thus, MN

A monopolistically competitive firm will not produce the socially optimum level of quantity. It will produce less quantity than that as it does not want to part away with the profits.

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