### 4. Is monopolistic competition efficient?Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve.**Instructions:**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.**Graph Explanation:**The graph presented illustrates the interactions between several economic curves essential for understanding monopolistic competition:- **Demand Curve (blue)**: Shows the relationship between the price of baseball bats and the quantity demanded by consumers.- **Marginal Revenue (MR) Curve (black)**: Represents the additional revenue the firm earns from selling one more unit of baseball bats.- **Marginal Cost (MC) Curve (orange)**: Depicts the additional cost incurred by producing one more unit of baseball bats.- **Average Total Cost (ATC) Curve (green)**: Shows the total cost per unit of output when the total cost is divided by the quantity of output produced.The graph has two designated points for illustration:- **Mon Comp Outcome (black plus symbol)**: Indicates the long-run equilibrium point where the firm maximizes its profits under monopolistic competition.- **Min Unit Cost (grey star symbol)**: Indicates the minimum average total cost (ATC) and its corresponding quantity.**Axes:**- **X-axis (Horizontal):** Quantity of bats (in thousands)- **Y-axis (Vertical):** Price (in dollars per bat) The quantity ranges from 0 to 100 thousand bats, and the price ranges from 0 to 100 dollars per bat. The intersection of these curves and designated points helps in understanding the efficiency and cost structure in monopolistic competition. Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that **marginal cost = marginal revenue** at the optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is **equal to** the minimum average total cost.True or False: This indicates that there is a markup on marginal cost in the market for bats.- ○ True- ○ FalseMonopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the **business-stealing** externality implies that there is too little entry of new firms in the market.

The point on the demand curve corresponding to the level where MR = MC is the equilibrium output of…

Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is the minimum average total cost. True or False: This indicates that there is a markup on marginal cost in the market for bats. True False Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too little entry of new firms in the market.

Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is the minimum average total cost. True or False: This indicates that there is a markup on marginal cost in the market for bats. True False Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too little entry of new firms in the market.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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