Question

5) Use the figure below to answer the following question. Price and cost (dollars per unit) MC 80 60 ATC 40 20 D MR 0 20 40 60 80 100 Quantity (units per week) Figure 2 a) Refer to Figure 2 If this firm is in monopolistic competition, what is its output? b) Refer to Figure 2 If this firm is in monopolistic competition, what is the price it will charge? c) Refer to Figure 2. In the short term, what is the firm profit situation? explain d) Refer to Figure 13.2.1. If this firm in monopolistic competition is in short-run equilibrium, and the firm making profit what will happen in the long run to the firm profit? explain De hip

Answer 1

a) Equilibrium output is where MR and MC are equal.

Equilibrium output = 40 units per week

b) Equilibrium price is where intersection of MR and MC meets the demand curve.

Equilibrium price = $50

c) Firm's profit = Equilibrium price * Equilibrium output - ATC * output

= 50*40 - 25*40 = 2000 - 1000 = $1000

d) Firm is earning positive profit in the short run so firm will continue its production in long run.

Price & Cost mc 70 Profit ATE 50 40 25* 20 D MIR 0 40 60 Quantity CS Scanned with CamScanner