3. Consider the following cost diagram for a piza restaurant, a firm in a monopolistically competitive industry. Price Average cost, MC Marginal cost, MC Perceived demand curve For firm MR Quantity a) Draw a copy of the graph showing the optimal quantity and price for the firm, and the areas that represent its total cost and total profit. b) Given the cost diagram exactly as it is drawn, describe what is likely to happen to the restaurant's economic profit in the long-run, and why. c) Suppose that after the market has reached long-run equilibrium, local consumer tastes change away from this restaurant and demand for its pizzas falls. What will happen to the restaurant's profit margin in this scenario?

3. Consider the following cost diagram for a piza restaurant, a firm in a monopolistically competitive industry. Price Average cost, MC Marginal cost, MC Perceived demand curve For firm MR Quantity a) Draw a copy of the graph showing the optimal quantity and price for the firm, and the areas that represent its total cost and total profit. b) Given the cost diagram exactly as it is drawn, describe what is likely to happen to the restaurant's economic profit in the long-run, and why. c) Suppose that after the market has reached long-run equilibrium, local consumer tastes change away from this restaurant and demand for its pizzas falls. What will happen to the restaurant's profit margin in this scenario?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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