Suppose the market for cereal is monopolis competitive and in long-run equilibrium. TH demand (and marginal revenue) for a firm i is illustrated in the graph to the right, along average total cost and marginal cost of pro- brand of cereal. Compared to perfectly competitive markets he long-run, monopolistically competitive m
Suppose the market for cereal is monopolis competitive and in long-run equilibrium. TH demand (and marginal revenue) for a firm i is illustrated in the graph to the right, along average total cost and marginal cost of pro- brand of cereal. Compared to perfectly competitive markets he long-run, monopolistically competitive m
Chapter1: Making Economics Decisions
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Transcribed Image Text:Suppose the market for cereal is monopolistically
competitive and in long-run equilibrium. The
demand (and marginal revenue) for a firm in this industry
is illustrated in the graph to the right, along with that firm's
average total cost and marginal cost of producing its
brand of cereal.
Compared to perfectly competitive markets in
the long-run, monopolistically competitive markets, such
as that for cereal,
allocatively efficient because
they produce
excess capacity.
For example, according to the graph, the monopolistically
competitive firm has excess capacity of thousand
boxes. (Enter a numeric response using an integer.)
200
180-
160-
140-
120-
100-
80-
60-
40-
Price and cost (dollars per box)
20-
MC
ATI
MR
D
90 180 270 360 450 540 630 720 810 S
Quantity of cereal (per week in 1000s)
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