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2. Entry or exit in the long run Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 Monopolistically Competitive Outcome 400 350 ATC 300 A-TL- Profit or Loss 250 A 200 150 MC 100 50 MR Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is earning profit, which means there are v shops in the industry than in long-run equilibrium. PRICE (Dollars per bike)

2. Entry or exit in the long run Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 Monopolistically Competitive Outcome 400 350 ATC 300 A-TL- Profit or Loss 250 A 200 150 MC 100 50 MR Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is earning profit, which means there are v shops in the industry than in long-run equilibrium. PRICE (Dollars per bike)

Principles of Economics, 7th Edition (MindTap Course List)
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: Monopolistic Competition
Section: Chapter Questions
Problem 5PA
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2. Entry or exit in the long run Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 Monopolistically Competitive Outcome 400 350 300 Profit or Loss A ATC 250 200 150 MC 100 50 MR Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is earning profit, which means there are shops in the industry than in long-run equilibrium. PRICE (Dollars per bike)
Transcribed Image Text:2. Entry or exit in the long run Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 Monopolistically Competitive Outcome 400 350 300 Profit or Loss A ATC 250 200 150 MC 100 50 MR Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is earning profit, which means there are shops in the industry than in long-run equilibrium. PRICE (Dollars per bike)
Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. (?) Demand emand QUANTITY (Bikes) Which of the following statements are true about both monopolistic competition and monopoly? Check all that apply. Price is above marginal cost. Firms are not price takers. Firms earn zero profit in the long run. Price equals average total cost in the long run. PRICE (Dollars per bike)
Transcribed Image Text:Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. (?) Demand emand QUANTITY (Bikes) Which of the following statements are true about both monopolistic competition and monopoly? Check all that apply. Price is above marginal cost. Firms are not price takers. Firms earn zero profit in the long run. Price equals average total cost in the long run. PRICE (Dollars per bike)
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