The mobile phone industry is monopolistically competitive, and is described by Diagram A and Diagram B above. Samsung pursued a successful differentiation strategy and, as a result, is making a positive economic profit in the short run. PART A: Which diagram (Diagram A or Diagram B) represents Samsung’s situation in the short run and long run, respectively? PART B: Referring to the short-run diagram you selected in part a, identify Samsung’s short-run profit maximising output and explain how Samsung decided to produce this output. PART C: What is the price of each mobile phone? How much profit is Samsung making in the short run? Explain.
The mobile phone industry is
PART A: Which diagram (Diagram A or Diagram B) represents Samsung’s situation in the short run and long run, respectively?
PART B: Referring to the short-run diagram you selected in part a, identify Samsung’s short-run profit maximising output and explain how Samsung decided to produce this output.
PART C: What is the price of each mobile phone? How much profit is Samsung making in the short run? Explain.
PART D: Identify the area that represents
PART E: Explain how the other firms producing mobile phones would react to Samsung’s short-run positive economic profit. What would be the long-run impact on Samsung’s output, price and profit? Illustrate your answer with the long-run diagram you identified in part A.
PART F: In the long run, Samsung is inefficient and has excess capacity. Identify the inefficiency and excess capacity on the long-run diagram and explain why they occur.
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