33. Gas’n'Go is one of the 20 gas stations in Lafayette,
California. The following diagram shows the demand curve (D),
marginal revenue curve (MR), marginal cost curve (MC) and average
total cost curve (ATC) for GasN'Go. Assume that the market for
gasoline is a monopolistically competitive market.
Part 1: Label all curves and identify and label the initial price
(P1) and quantity (Q1).
Part 2: Suppose that the price of oil increases, causing Gas'n'Go's
production costs to also increase (oil is a variable cost for
Gas'n'Go and assume the change in oil prices has no impact on
consumers preferences). Show the impact of the lower cost of gas
production on the model. Label any new curve(s) you draw D2, MR2,
MC2 or ATC2 as necessary.
Part 3: Identify and label the price (P2) and quantity (Q2).
Extra Credit [2 points]: Given the change in costs, do you expect
firms to enter or exit the gasoline market. Explain your answer
using economic concepts discussed in
this unit.
33. Gas’n'Go is one of the 20 gas stations in Lafayette, California. The following diagram shows the demand curve (D), marginal revenue curve (MR), marginal cost curve (MC) and average total cost...
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