Question

Module 8 (Extra Credit) Name Assignment (20 points) a. Assume Starbucks Franchise is part of a monopolistic competitive market. You operate a Starbucks Cafe. Your profit-maximizing quantity is 50,000 cups of coffee per year, and at this quantity, your price is $1.50 while your average cost per coffee is $3.00. In the graph below Label both axes (1 points) b. Draw and label the demand curve (D), marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) (2 points) c. Label equilibrium price & quantity combination, ATC price, and MR = MC/equilibrium point (e). (2 points) d. Shade in profits/Loss on the graph. (3 points) e. Calculate Profits/Loss (2 points)

Answer 1

Sol 1 :

a. AC Curve is a U shaped curve and price is equal to the average revenue curve.

b. Demand curve is the average revenue curve , MR curve is lower than the AR .

c. Equilibrium price and quantity is the point where quantity demanded and quantity supplied are equal to each other

d. Profit = Total Revneue - total cost

AC MC $L5 equilibrium AR (Demond's Curve) O 50000 Lauantity MR equilibrium quantity

AC MC $L5 equilibrium AR (Demond's Curve) O 50000 Lauantity MR equilibrium quantity
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