Consider the following graph of a monopolistically competitive firm: 50 45 40 35 ↑ Price 20 15- 10- MC ATC MR 10 20 30 40 50 60 70 80 Quantity a. When the firm profit maximizes, what is the amount of the firm's profit or loss? Is this firm in the short run or long run equilibrium and why? b. Assume that this firm is typical of other firms in the industry. Given the profit (or loss) that firms in the market are earning, what adjustments will happen in the long run for the market to reach long run equilibrium? c. What is the similarity between the long run equilibrium of this monopolistically competitive firm from a perfectly competitive firm? What is (are) the difference(s) in their long run equilibrium situation (consider price and output levels)?
Consider the following graph of a monopolistically competitive firm: 50 45 40 35 ↑ Price 20 15- 10- MC ATC MR 10 20 30 40 50 60 70 80 Quantity a. When the firm profit maximizes, what is the amount of the firm's profit or loss? Is this firm in the short run or long run equilibrium and why? b. Assume that this firm is typical of other firms in the industry. Given the profit (or loss) that firms in the market are earning, what adjustments will happen in the long run for the market to reach long run equilibrium? c. What is the similarity between the long run equilibrium of this monopolistically competitive firm from a perfectly competitive firm? What is (are) the difference(s) in their long run equilibrium situation (consider price and output levels)?
Chapter14: Monopolistic Competition And Product Differentiation
Section: Chapter Questions
Problem 10P
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