4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for pickleball paddles. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. 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. (?) 28 22 PRICE (Dollars per paddle) 8 292 29 20 O MC ATC MR 10 20 30 40 50 60 QUANTITY (Thousands of paddies) 70 True o False Demand 80 90 100 Mon Comp Outcome Min Unit Cost 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 Ythe minimum average total cost. True or False: This indicates that there is excess capacity in the market for paddles. 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 little entry of new firms in the market.
4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for pickleball paddles. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. 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. (?) 28 22 PRICE (Dollars per paddle) 8 292 29 20 O MC ATC MR 10 20 30 40 50 60 QUANTITY (Thousands of paddies) 70 True o False Demand 80 90 100 Mon Comp Outcome Min Unit Cost 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 Ythe minimum average total cost. True or False: This indicates that there is excess capacity in the market for paddles. 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 little 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 pickleball
paddles. The following graph shows the demand curve, marginal revenue (MR) curve, marginal
cost (MC) curve, and average total cost (ATC) curve for the firm.
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 paddle)
100
R
60
50
40
30
20
10
0
0
MC
ATC
MR
10 20 30 40 50 60
QUANTITY (Thousands of paddies)
70
Demand
80 90 100
+
Mon Comp Outcome
Min Unit Cost
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
Ythe minimum average total
cost.
True or False: This indicates that there is excess capacity in the market for paddles.
o True
o False
Monopolistically competitive markets may be socially inefficient due to the presence of too many or
too few firms. The presence of the
Yexternality implies that there is too little
entry of new firms in the market.
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