Suppose that a firm produces polo shirts in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve.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. 10090Mon Comp Outcome807060Min Unit Cost50ATC40302010MCMRDemand102030405060708090100QUANTITY (Thousands of shirts)Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that P= ATCat theoptimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium isequal totheminimum average total cost.True or False: This indicates that there is a markup on marginal cost in the market for shirts.TrueFalseMonopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of theproduct varietyexternality implies that there is too little entry of new firms in the market.PRICE (Dollars per shirt)

Answered: 100 90 Mon Comp Outcome 80 70 60 Min…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that a firm produces polo shirts in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve.

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.

100
90
Mon Comp Outcome
80
70
60
Min Unit Cost
50
ATC
40
30
20
10
MC
MR
Demand
10
20
30
40
50
60
70
80
90
100
QUANTITY (Thousands of shirts)
Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that P= ATC
at the
optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is
equal to
the
minimum average total cost.
True or False: This indicates that there is a markup on marginal cost in the market for shirts.
True
False
Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the
product variety
externality implies that there is too little entry of new firms in the market.
PRICE (Dollars per shirt)

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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