Question

3. MC Price ATC Demand (AR) MR Quantity Graph, Label and Describe in terms of: A. Name of Market Structure (3 points) b. Ability to control prices. (3 points) d. Pure profit, Normal profit or c. Spending on advertising and marketing losses. (3 points) (3 points)

Answer 1

The given market is structural belongs to a monopolistic competition. This is because the demand and marginal revenue curves are downward-sloping but are highly elastic. Also note that the production is done closer to the minimum of average total cost which means there is an excess capacity as well.

The ability to control prices is called price making ability or market power. Because the demand and marginal revenue functions are downward sloping, the price charged will always be greater than the marginal cost which indicates the market power of the firm

The cost that is incurred on spending on advertising and marketing is called selling cost. It is the sum of money that is spent in promotion and branding of the product in order to increase the sales. Products sold are differentiated and the same information is communicated to the consumers with the help of promotion and advertising

in the short run there can be economic profit or even economic losses but in the long run there are only normal profits. in this case the price is less than the average total cost which means this firm is operating in the short run and is currently earning economic profit.