Suppose that a firm produces wool jackets in a monopolistically competitive market. The following graph shows its demand (D) curve, marginalrevenue (MR) curve, marginal cost (MC) curve, and long-run average total cost (LRATC) curve. Assume that all firms in the industry face thesame cost structure.Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next,place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitivemarket.Note: Dashed drop lines will automatically extend to both axes.100PRICE, COSTS, AND REVENUE (Dollars per jacket)8 8810 MC0010LRATCMR20 30 40 50 60 70QUANTITY (Thousands of jackets)Under...Monopolistic CompetitionPerfect Competition80DAverage Total Cost(Dollars per jacket)90 100Monopolistic Competition OutcomeCompare the average total cost and the output level in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitivefirm by completing the following table.Perfect Competition OutcomeOutput Level(Thousands of jackets)Because this market is a monopolistically competitive market, the firm's average total cost in long-run equilibrium isaverage cost it would achieve as a firm operating in a perfectly competitive market.The output level of a monopolistically competitive firm in long-run equilibrium isThis difference in output is known as thethe long-runthe output level of a perfectly competitive firm.of a monopolistically competitive firm.

Average total cost refers to the per unit cost of the product.

marginal opose that a firm produces wool jackets in a monopolistically competitive market. The following graph shows its enue (MR) curve, marginal cost (MC) curve, and long-run average total cost (LRATC) curve. Assume that all firms in the industry face the he cost structure. ce the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, ce the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive rket.

marginal opose that a firm produces wool jackets in a monopolistically competitive market. The following graph shows its enue (MR) curve, marginal cost (MC) curve, and long-run average total cost (LRATC) curve. Assume that all firms in the industry face the he cost structure. ce the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, ce the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive rket.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter14: Monopolistic Competition And Product Differentiation

Section: Chapter Questions

Problem 17P

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Question

Suppose that a firm produces wool jackets in a monopolistically competitive market. The following graph shows its demand (D) curve, marginal
revenue (MR) curve, marginal cost (MC) curve, and long-run average total cost (LRATC) curve. Assume that all firms in the industry face the
same cost structure.
Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next,
place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive
market.
Note: Dashed drop lines will automatically extend to both axes.
100
PRICE, COSTS, AND REVENUE (Dollars per jacket)
8 8
8
10 MC
0
0
10
LRATC
MR
20 30 40 50 60 70
QUANTITY (Thousands of jackets)
Under...
Monopolistic Competition
Perfect Competition
80
D
Average Total Cost
(Dollars per jacket)
90 100
Monopolistic Competition Outcome
Compare the average total cost and the output level in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive
firm by completing the following table.
Perfect Competition Outcome
Output Level
(Thousands of jackets)
Because this market is a monopolistically competitive market, the firm's average total cost in long-run equilibrium is
average cost it would achieve as a firm operating in a perfectly competitive market.
The output level of a monopolistically competitive firm in long-run equilibrium is
This difference in output is known as the
the long-run
the output level of a perfectly competitive firm.
of a monopolistically competitive firm.

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Step 3: Calculate the AC for perfect and monopolistic firms. - Part 2

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Step 4: Calculate the AC for perfect and monopolistic firms. - Part 3

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