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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
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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FIGURE 6-7 Price pa big Long-run equilibrium without trade Q₁ D/NT Q3 Long-run equilibrium with trade mr3 "d3 AC MC Quantity Long-Run Monopolistic Competition Equilibrium with Trade The long-run equilibrium with trade occurs at point C. At this point, profit is maximized for each firm producing Q3 (which satisfies mr3= MC) and charging price pw (which equals AC). Because monopoly profit is zero when price equals average cost, no firms enter or exit the industry. Compared with the long-run equilibrium without trade (Figure 6-5), d, (along with mr3) has shifted out as domestic firms exited the industry and has become more elastic due to the greater total number of varieties with trade, 2N¹ > N¹. Compared with the long-run equilibrium without trade at point A, the trade equilibrium at point C has a lower price and higher sales by all surviving firms.
Transcribed Image Text:FIGURE 6-7 Price pa big Long-run equilibrium without trade Q₁ D/NT Q3 Long-run equilibrium with trade mr3 "d3 AC MC Quantity Long-Run Monopolistic Competition Equilibrium with Trade The long-run equilibrium with trade occurs at point C. At this point, profit is maximized for each firm producing Q3 (which satisfies mr3= MC) and charging price pw (which equals AC). Because monopoly profit is zero when price equals average cost, no firms enter or exit the industry. Compared with the long-run equilibrium without trade (Figure 6-5), d, (along with mr3) has shifted out as domestic firms exited the industry and has become more elastic due to the greater total number of varieties with trade, 2N¹ > N¹. Compared with the long-run equilibrium without trade at point A, the trade equilibrium at point C has a lower price and higher sales by all surviving firms.
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/N¹ 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.
Transcribed Image Text: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/N¹ 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.
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