**Text Transcription and Explanation for Educational Website:**The task involves analyzing the graph to determine the price and quantity a firm will settle at in a monopolistic competition market in long-run equilibrium. Additionally, we explore the conditions necessary for establishing monopolistic competition and how the market adjusts to long-run equilibrium.### Graph Explanation:The graph presented includes several curves and lines as follows:- **Demand Curve (D):** This downward-sloping curve indicates the quantity of goods demanded at various price levels. - **Marginal Revenue Curve (MR):** The MR curve lies below the demand curve for monopolistic competition, showing the additional revenue from selling one more unit. - **Marginal Cost Curve (MC):** This curve slopes upwards, representing the added cost of producing one additional unit. - **Average Total Cost Curve (ATC):** This U-shaped curve shows the average cost per unit at different levels of production.### Key Equilibrium Points:- **E (Equilibrium Point):** - Price: P3 - Quantity: Q2At point E, the firm's marginal revenue (MR) equals marginal cost (MC), which is necessary for profit maximization. Additionally, the price level P3 is where the ATC curve touches the demand curve, indicating no economic profits in the long-run equilibrium.### Explanation:#### a) Long-Run Equilibrium:In the long run, firms in monopolistic competition will adjust to a point where they make normal profit (zero economic profit). This happens because:1. **Entry and Exit:** New firms enter the market if existing firms are making short-term profits, increasing competition and driving the price down. Conversely, firms exit if they incur losses, reducing supply and driving prices up. 2. **Demand Elasticity:** The demand curve becomes more elastic due to increased product differentiation and consumer choice.At the equilibrium point E, firms produce at Q2 and charge a price of P3. This price equals the ATC, ensuring no excess profit.#### b) Conditions for Monopolistic Competition:1. **Many Sellers and Buyers:** Numerous firms compete for consumer attention, offering similar yet differentiated products. 2. **Product Differentiation:** Each firm offers slightly different products, creating distinct market segments. 3. **Free Entry and Exit:** Firms can enter or leave the market with relative ease, influencing prices and output.**Adjustment to Long-Run Equilibrium:**In monopol

a). In a monopolistic market, the quantity is decided by the intersection of the MR(marginal…

a) Using the following graph state the price and quantity the firm will be at if the monopolistic competition market is in long run equilibrium. Explain why the firm will be at that price and quantity. Price P1 MC ATC P 2 P3 P4 P5 i MR Q1 Q2 Q3 Quantity b) State the conditions that establish the market structure monopolistic competition, and state how the market adjusts to long run equilibrium and what is different about long run equilibrium for this market structure.

a) Using the following graph state the price and quantity the firm will be at if the monopolistic competition market is in long run equilibrium. Explain why the firm will be at that price and quantity. Price P1 MC ATC P 2 P3 P4 P5 i MR Q1 Q2 Q3 Quantity b) State the conditions that establish the market structure monopolistic competition, and state how the market adjusts to long run equilibrium and what is different about long run equilibrium for this market structure.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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