4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Itranscript Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. PRICE (Dollars per razor) 100 90 80 70 60 50 40 30 20 10 0 0 MC + 10 Itranscript O True ATC O False MR Itranscript 20 30 40 50 60 70 QUANTITY (Thousands of razors) 80 Demand 90 100 Itranscript Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Further, a monopolistically competitive firm's average total cost in long-run equilibrium is the minimum average total cost. + Mon Comp Outcome * True or False: This indicates that there is a markup on marginal cost in the market for razors. Min Unit Cost Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of the externality implies that there is too much entry of new firms in the market.
4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Itranscript Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. PRICE (Dollars per razor) 100 90 80 70 60 50 40 30 20 10 0 0 MC + 10 Itranscript O True ATC O False MR Itranscript 20 30 40 50 60 70 QUANTITY (Thousands of razors) 80 Demand 90 100 Itranscript Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Further, a monopolistically competitive firm's average total cost in long-run equilibrium is the minimum average total cost. + Mon Comp Outcome * True or False: This indicates that there is a markup on marginal cost in the market for razors. Min Unit Cost Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of the externality implies that there is too much entry of new firms in the market.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:4. Is monopolistic competition efficient?
Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve,
marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm.
Itranscript
Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next,
place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost.
PRICE (Dollars per razor)
100
90
80
70
60
50
40
30
20
10
0
0
MC
+
10
Itranscript
O True
ATC
O False
MR
Itranscript
20 30 40 50 60 70
QUANTITY (Thousands of razors)
80
Demand
90 100
Itranscript
Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each
firm. Further, a monopolistically competitive firm's average total cost in long-run equilibrium is
the minimum average total cost.
+
Mon Comp Outcome
*
True or False: This indicates that there is a markup on marginal cost in the market for razors.
Min Unit Cost
Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of the
externality implies that there is too much entry of new firms in the market.
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