Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand curve (D), marginal revenue curve (MR), marginal cost curve (MC), and long-run average cost curve (LRAC). 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 LRAC 60 50 PRICE, COSTS, AND REVENUE (Dollars per racquet) 8 R 90 MC 10 0 0 10 D MR 50 60 70 80 90 100 20 30 40 QUANTITY (Thousands of racquets per month) Monopolistic Competition Outcome Perfect Competition Outcome Compare the average cost and the output in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm by completing the following table. Under... Monopolistic Competition Perfect Competition Average Cost Output (Dollars per racquet) (Thousands of racquets per month) Because this market is a monopolistically competitive market, the firm's average cost in long-run equilibrium is average cost it would achieve as a firm operating in a perfectly competitive market. the long-run The output of a monopolistically competitive firm in long-run equilibrium is difference in output is known as the the output of a perfectly competitive firm. This of a monopolistically competitive firm.
Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand curve (D), marginal revenue curve (MR), marginal cost curve (MC), and long-run average cost curve (LRAC). 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 LRAC 60 50 PRICE, COSTS, AND REVENUE (Dollars per racquet) 8 R 90 MC 10 0 0 10 D MR 50 60 70 80 90 100 20 30 40 QUANTITY (Thousands of racquets per month) Monopolistic Competition Outcome Perfect Competition Outcome Compare the average cost and the output in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm by completing the following table. Under... Monopolistic Competition Perfect Competition Average Cost Output (Dollars per racquet) (Thousands of racquets per month) Because this market is a monopolistically competitive market, the firm's average cost in long-run equilibrium is average cost it would achieve as a firm operating in a perfectly competitive market. the long-run The output of a monopolistically competitive firm in long-run equilibrium is difference in output is known as the the output of a perfectly competitive firm. This of a monopolistically competitive firm.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand curve (D), marginal
revenue curve (MR), marginal cost curve (MC), and long-run average cost curve (LRAC). 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
LRAC
60
50
PRICE, COSTS, AND REVENUE (Dollars per racquet)
8
R
90
MC
10
0
0
10
D
MR
50 60
70 80
90 100
20 30 40
QUANTITY (Thousands of racquets per month)
Monopolistic Competition Outcome
Perfect Competition Outcome
Compare the average cost and the output in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm by
completing the following table.
Under...
Monopolistic Competition
Perfect Competition
Average Cost
Output
(Dollars per racquet) (Thousands of racquets per month)
Because this market is a monopolistically competitive market, the firm's average cost in long-run equilibrium is
average cost it would achieve as a firm operating in a perfectly competitive market.
the long-run
The output of a monopolistically competitive firm in long-run equilibrium is
difference in output is known as the
the output of a perfectly competitive firm. This
of a monopolistically competitive firm.
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