3. Begin with the long-term equilibrium in the monopolistic competition model as shown in figure 6-7. Consider what happens when industry demand, D, increases. For example, assume that the demand for automobiles increases globally due to higher incomes in a number of countries. a. Draw a figure similar to 6-7 for the Home market and show the shift in the D/NT curve and the new short-run equilibrium. Label the new D/NT curve D/N(T)4, the new demand curve d4, the new marginal revenue curve mr4 and the equilibrium world price P(W)4 and quantity Q4. b. Given this new equilibrium to you expect existing firms to exit the industry or new firms to enter? Provide the reasoning behind your answer. Draw and describe where the new long- run equilibrium occurs and explain whether the number of firms increases or decreases versus your answers in a. and b., and discuss what happens to the elasticity of demand and new world price. Label the long-run demand curve d5, the marginal revenue curve mr5, the new D/NT curve D/N(T)5, and the equilibrium world price P(W)5 and quantity Q5. C.

3. Begin with the long-term equilibrium in the monopolistic competition model as shown in figure 6-7. Consider what happens when industry demand, D, increases. For example, assume that the demand for automobiles increases globally due to higher incomes in a number of countries. a. Draw a figure similar to 6-7 for the Home market and show the shift in the D/NT curve and the new short-run equilibrium. Label the new D/NT curve D/N(T)4, the new demand curve d4, the new marginal revenue curve mr4 and the equilibrium world price P(W)4 and quantity Q4. b. Given this new equilibrium to you expect existing firms to exit the industry or new firms to enter? Provide the reasoning behind your answer. Draw and describe where the new long- run equilibrium occurs and explain whether the number of firms increases or decreases versus your answers in a. and b., and discuss what happens to the elasticity of demand and new world price. Label the long-run demand curve d5, the marginal revenue curve mr5, the new D/NT curve D/N(T)5, and the equilibrium world price P(W)5 and quantity Q5. C.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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