4. Is monopolistic competition efficient? Suppose that a firm produces baseball bats 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. PRICE (Dollars per bat) 100 288 28 20 10 0 MC 0 True 20 False ATC MR Demand 30 40 50 60 70 80 QUANTITY (Thousands of bats) 100 Mon Comp Outcome Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is True or False: This indicates that there is excess capacity in the market for bats. Min Unit Cost at the the efficient scale. Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too little entry of new firms in the market.
4. Is monopolistic competition efficient? Suppose that a firm produces baseball bats 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. PRICE (Dollars per bat) 100 288 28 20 10 0 MC 0 True 20 False ATC MR Demand 30 40 50 60 70 80 QUANTITY (Thousands of bats) 100 Mon Comp Outcome Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is True or False: This indicates that there is excess capacity in the market for bats. Min Unit Cost at the the efficient scale. Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too little entry of new firms in the market.
Chapter1: Making Economics Decisions
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Transcribed Image Text:4. Is monopolistic competition efficient?
Suppose that a firm produces baseball bats 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.
PRICE (Dollars per bat)
100
90
80
70
60
8
50
40
30
20
10
0
MC
0
10
ATC
O True
MR
False
Demand
20 30 40 50 60 70
QUANTITY (Thousands of bats)
80
90
100
Mon Comp Outcome
Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that
optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is
Min Unit Cost
True or False: This indicates that there is excess capacity in the market for bats.
at the
the efficient scale.
Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the
externality implies that there is too little entry of new firms in the market.
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