Question

Understanding Excess Capacity

Homework (Ch 16) Quantity (Board games) Total Cost Marginal Cost (Dollars) (Dollars) Price (Dollars per game) 12.00 10.00 Total Revenue (Dollars) Marginal Revenue (Dollars) Average Total Cost (Dollars) 9.00 4.00 2.00 1.00 AAAAA Under monopolistic competition, a typical firm will produce board games at a price of $ per board game in the short run. Based on your calculations, the firm will Fill in the Average Total Cost column in the previous table. Based on your calculations, the level of excess capacity in this monopolistically competitive market is 2 board games Grade It Now Save & Continue

Answer 1

Q	P	TC	MC=Change in TC	TR	MR= Change in TR	ATC=TC/Q
1	12	13	-	12	-	13
2	10	28	15	20	8	14
3	9	30	2	27	7	10
4	8	36	6	32	5	9
5	6	40	4	30	-2	8
6	4	60	20	24	-6	10
7	2	72	12	14	-10	10.29
8	1	96	24	8	-6	12

Under monopolistic competition , a typical firm will produce 3 board games (because when Q=3 , then MR>MC and when Q=4 , then MR<MC) and  at a price of $9 per board game in the short run.

Firm's profit = (TR-TC)= $(27-30)= -$3

Based on the calculations , the firm will suffer an economic loss of $3.

The level of excess capacity is (average cost at profit maximizing - minimum average cost ) = $(10-8)= 2 , so level of excess capacity in this monopolistically competitive market is 2 board games.

Answer 2