Question

27. Use the chart below of a monopolistically compe ons on the below Ora monopolistically competitive firm to answer the (5 points cach. JO points to MC ATC (A) In the chart on the left, show the quantity of output for a firm that would maximize its profits (or minimize its losses) in the short run. Label this quantity qon the quantity axis. (B) I In the chart on the left, show the MR firm's price at the quantity q* (from your answer in part A) and label it Po on the Q cost and revenue axis. (C) Show the Average Total Cost at the output q* (from you answer in part A) and label it on the cost and revenue axis. (D) Show the profit (or loss) that the firm will have based on your answers in parts A, B, and C. Please clearly label the profit or loss. CE) Would this firm be efficient in production in the short run based on your answer in parts A, B, and C? Explain briefly using the definition of productive efficiency. (F) Given your answer in part (D), what will firms do in the long run? What will happen to the number of firms in this industry? Please explain on the line below.

Answer 1

Answer to question 27. (A) - (D)

27. (A)-(0) A profit maximizing monopolistically competitive fisson produces at the point where mR= me and Sets it's profit maximizing price at the point where profit maximizing quantity lies. on the demand curve.

ATC profit maximizing quantity = q* me ATC 9* Pret: maximizing price = Po. me ATC VmRD ATC at q* = P, LATC hoss - MR o q* At profit maximizing quantity, q* Total revenue = r Poqt = area po bqto Total cost = ATC & q* = area P, a oqt AS TC7 TR, therefore there is a loss = area area-bate - core Panto - area , bro) = area P. abo