EBK EXPLORING ECONOMICS
EBK EXPLORING ECONOMICS
7th Edition
ISBN: 9780100544772
Author: Sexton
Publisher: YUZU
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Chapter 14, Problem 6P
To determine

To explain:

The relationship between price and average total cost when firm earns economics losses and the change that will occur in demand curve due to this loss

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The following graph represents a monopolistically competitive firm in long-run equilibrium. Place the black point (cross sign) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Next, place the grey star on the graph to indicate the point where the LRAC reaches a minimum. PRICE PER UNIT (Dollars) 500 450 400 350 300 250 200 150 100 50 MC 0 0 50 LRAC MR Demand 100 150 200 250 300 350 400 450 500 QUANTITY (Units) Monopolistically Competitive Outcome Minimum of the LRAC The long-run equilibrium price is $ (Hint: Use the graph to find the numeric value of the price at equilibrium.) The long-run equilibrium quantity is units. The LRAC curve is at its minimum at a quantity of The long-run equilibrium price is units. the marginal cost of producing the equilibrium output. ?
The diagram above represents a monopolistically competitive firm. Answer the questions below.  Is this firm operating in the short-run or long-run? How do you know?  Calculate this firm’s accounting profit.  From the diagram, what is the productively efficient output for this firm?  From the diagram, economies of scale are maximized at which output level? Explain.  From the diagram, what is the allocatively efficient output for this firm? Explain.
In the long run, the positive economic profits earned by the monopolistic competitor will attract a response either from existing firms in the industry or firms outside. As those firms capture the original firm’s profit, what will happen to the original firm’s profit-maximizing price and output levels? Show on a graph
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