5. How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 Monopolistically Competitive Outcome 400 350 20 Profit or Loss 300 250 200 150 ATC 100 50 Demand MR 0 H 0 GU 100 150 200 250 300 350 400 450 000 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is making profit, which means there are shops in the industry relative to the long-run equilibrium. Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. (?) PRICE (Dollars per bike) (છત્રાવ થd 1) PRICE (Dollars per bike) MG Demand Demand QUANTITY (Bikes) Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply. Price equals average total cost in the long run. Price is above marginal cost. Firms earn zero profit in the long run. Firms can earn positive profit in the long run.
5. How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 Monopolistically Competitive Outcome 400 350 20 Profit or Loss 300 250 200 150 ATC 100 50 Demand MR 0 H 0 GU 100 150 200 250 300 350 400 450 000 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is making profit, which means there are shops in the industry relative to the long-run equilibrium. Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. (?) PRICE (Dollars per bike) (છત્રાવ થd 1) PRICE (Dollars per bike) MG Demand Demand QUANTITY (Bikes) Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply. Price equals average total cost in the long run. Price is above marginal cost. Firms earn zero profit in the long run. Firms can earn positive profit in the long run.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:5. How short-run profit or losses induce entry or exit
Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand
curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC).
Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive
company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss.
500
450
Monopolistically Competitive Outcome
400
350
20
Profit or Loss
300
250
200
150
ATC
100
50
Demand
MR
0
H
0
GU
100
150 200 250 300 350 400 450 000
QUANTITY (Bikes)
Given the profit-maximizing choice of output and price, the shop is making
profit, which means there are
shops in the industry relative to the long-run equilibrium.
Now consider the long run in which bike manufacturers are free to enter and exit the market.
Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph.
(?)
PRICE (Dollars per bike)
(છત્રાવ થd 1)
PRICE (Dollars per bike)
MG
Demand
Demand
QUANTITY (Bikes)
Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply.
Price equals average total cost in the long run.
Price is above marginal cost.
Firms earn zero profit in the long run.
Firms can earn positive profit in the long run.
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