3. Is monopolistic competition efficient? Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand (D) curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average cost (AC) curve. Assume that all firms in the industry face the same cost structure. Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive market. Note: Dashed drop lines will automatically extend to both axes. PRICE, COSTS, AND REVENUE (Dollars per racquet) 100 90 80 70 R 40 30 20 10 C D D 10 20 30 40 70 QUANTITY (Thousands of racquets) Under... MR Monopolistic Competition Perfect Competition 80 90 100 D Compare the average cost and the production level in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm by completing the following table. Average Cost (Dollars per racquet) 60 55 Monopolistic Competition Outcome Perfectly Competitive Outcome Production Level (Thousands of racquets) 40 55 Because this market is a monopolistically competitive market, the firm's average cost in long-run equilibrium is average cost it would achieve as a firm operating in a perfectly competitive market. The production level of a manopolistically competitive firm in long-run equilibrium is firm. This difference in output is predicted by the the long-run the production level of a perfectly competitive
3. Is monopolistic competition efficient? Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand (D) curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average cost (AC) curve. Assume that all firms in the industry face the same cost structure. Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive market. Note: Dashed drop lines will automatically extend to both axes. PRICE, COSTS, AND REVENUE (Dollars per racquet) 100 90 80 70 R 40 30 20 10 C D D 10 20 30 40 70 QUANTITY (Thousands of racquets) Under... MR Monopolistic Competition Perfect Competition 80 90 100 D Compare the average cost and the production level in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm by completing the following table. Average Cost (Dollars per racquet) 60 55 Monopolistic Competition Outcome Perfectly Competitive Outcome Production Level (Thousands of racquets) 40 55 Because this market is a monopolistically competitive market, the firm's average cost in long-run equilibrium is average cost it would achieve as a firm operating in a perfectly competitive market. The production level of a manopolistically competitive firm in long-run equilibrium is firm. This difference in output is predicted by the the long-run the production level of a perfectly competitive
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. Is monopolistic competition efficient?
Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand (D) curve, marginal
revenue (MR) curve, marginal cost (MC) curve, and average cost (AC) curve. Assume that all firms in the industry face the same cost structure.
Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next,
place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive
market.
Note: Dashed drop lines will automatically extend to both axes.
100
8
PRICE, COSTS, AND REVENUE (Dollars per racquet)
80
70
R
40
30
20
10 C
D
D 10
Under...
MR
30 40 50
70
QUANTITY (Thousands of racquets)
Monopolistic Competition
Perfect Competition
D
Average Cost
(Dollars per racquet)
60
55
90
Compare the average cost and the production level in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm
by completing the following table.
Monopolistic Competition Outcome
Perfectly Competitive Outcome
Production Level
(Thousands of racquets)
40
55
Because this market is a monopolistically competitive market, the firm's average cost in long-run equilibrium is
average cost it would achieve as afirm operating in a perfectly competitive market.
The production level of a monopolistically competitive firm in long-run equilibrium is
firm. This difference in output is predicted by the
the long-run
the production level of a perfectly competitive
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