2. How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal-revenue (MR) curve, marginal-cost (MC) curve, and average-total-cost (ATC) curve. 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. Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. 500 450 400 360 300 ATC 280 200 Mo Demand 180 200 250 300 350 400 450 500 QUANTITY (Bikes) Monopolistically Competitive Outcome Profit or Loss Given the profit-maximizing choice of output and price, the company is making profit, which means there are companies in the industry relative to the long-run equilibrium. Now consider the long run in which bike manufacturers are free to enter and exit the market. PRICE (Dollars per bike QUANTITY (Bikes) Demand --- Demand Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply. Price equals average total cost in the long run. Firms are not price takers. Firms can earn positive profit in the long run. Price is above marginal cost.
2. How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal-revenue (MR) curve, marginal-cost (MC) curve, and average-total-cost (ATC) curve. 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. Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. 500 450 400 360 300 ATC 280 200 Mo Demand 180 200 250 300 350 400 450 500 QUANTITY (Bikes) Monopolistically Competitive Outcome Profit or Loss Given the profit-maximizing choice of output and price, the company is making profit, which means there are companies in the industry relative to the long-run equilibrium. Now consider the long run in which bike manufacturers are free to enter and exit the market. PRICE (Dollars per bike QUANTITY (Bikes) Demand --- Demand Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply. Price equals average total cost in the long run. Firms are not price takers. Firms can earn positive profit in the long run. Price is above marginal cost.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:PRICE (Dolars per bike)
2. How short-run profit or losses induce entry or exit
Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand
curve, marginal-revenue (MR) curve, marginal-cost (MC) curve, and average-total-cost (ATC) curve.
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.
Now consider the long run in which bike manufacturers are free to enter and exit the market.
Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph.
500
400
400
ATC
300
250
200
150
100
Mo
Demand
0
° 50 100 150 200 200 300 350
450 500
QUANTITY (Bikes)
Monopolistically Competitive Outcome
Profit or Loss
Given the profit-maximizing choice of output and price, the company is making
profit, which means there are
companies in the industry relative to the long-run equilibrium.
Now consider the long run in which bike manufacturers are free to enter and exit the market.
PRICE (Dollars per bike)
QUANTITY (Bikes)
Demand
Demand
Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply.
Price equals average total cost in the long run.
Firms are not price takers..
Firms can earn positive profit in the long run.
Price is above marginal cost.
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