Question

2. Greater than, equal to, less than

Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. Mon Comp Outcome Min Unit Cost PRICE (Dollars per jacket) ATC МС - P > ATC MR Demand 0 10 90 100 MR = MC 20 30 40 50 60 70 80 QUANTITY (Thousands of jackets) P = ATC MR > MC at the Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that optimal quantity. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is average total cost. the minimum

Answer 1

(a) Equilibrium is at intersection of MR and MC with output 35 (and price $50). Minimum ATC is at output 60 (and price $40).

Mon Comp Outc Min Unit Cos OLMU POLJOICO ATC Demand OHHULMR + + 0 10 20 30 40 50 60 70 80 QUANTITY (Thousands of jackets) 90 100

(b) It is in long run equilibrium as P = ATC. Also, ATC is higher than minimum ATC.