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ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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![5. 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 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
20
Profit or Loss
300
250
200
150
ATC
100
50
Demand
MR
0
H
0
GU
100
150 200 250 300 350 400 450 000
QUANTITY (Bikes)
Given the profit-maximizing choice of output and price, the shop is making
profit, which means there are
shops 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.
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.
(?)
PRICE (Dollars per bike)
(છત્રાવ થd 1)
PRICE (Dollars per bike)
MG
Demand
Demand
QUANTITY (Bikes)
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.
Price is above marginal cost.
Firms earn zero profit in the long run.
Firms can earn positive profit in the long run.](https://content.bartleby.com/qna-images/question/b6fabcd9-7b91-4a2d-957b-3a926b263496/c3950653-74c1-43c0-8dd2-c67daa624f68/omwvi4l_thumbnail.png)
Transcribed Image Text:5. 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 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
20
Profit or Loss
300
250
200
150
ATC
100
50
Demand
MR
0
H
0
GU
100
150 200 250 300 350 400 450 000
QUANTITY (Bikes)
Given the profit-maximizing choice of output and price, the shop is making
profit, which means there are
shops 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.
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.
(?)
PRICE (Dollars per bike)
(છત્રાવ થd 1)
PRICE (Dollars per bike)
MG
Demand
Demand
QUANTITY (Bikes)
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.
Price is above marginal cost.
Firms earn zero profit in the long run.
Firms can earn positive profit in the long run.
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