Chapter 67, Problem 2FRQ

To determine

To represent: graphically a monopolistically competitive firm in long-run equilibrium and representing the excess capacity also.

Explanation of Solution

  

The above graph represents the monopolistically competitive firm in long-run equilibrium and the distance between Q* and Q’ represents the excess capacity.

P stands for Price

MC stands for marginal cost

LAC stands for the long-run average cost

MR stands for marginal revenue

The point where MC and LAC intersect each other is the equilibrium point.

Economics Concept Introduction

Introduction:

Monopolistic Competition: Where there are differentiated goods, there are many firms and there is the freedom to enter and exit.