Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:True or False: This indicates that there is a markup on marginal cost in the market for bats.
- ○ True
- ○ False
Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the __________ externality implies that there is too much entry of new firms in the market.

Transcribed Image Text:Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve.
**Instructions:**
- Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm.
- Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost.
**Graph Explanation:**
The graph includes the following:
- **Demand Curve:** Downward sloping, indicating the relationship between price and quantity demanded.
- **Marginal Revenue (MR) Curve:** Below the demand curve, representing the additional revenue from selling one more unit.
- **Marginal Cost (MC) Curve:** U-shaped, showing the cost of producing one more unit.
- **Average Total Cost (ATC) Curve:** U-shaped and above the MC curve, showing the average cost per unit at different output levels.
**Symbols:**
- **Mon Comp Outcome (Black Plus):** Indicates the long-run equilibrium price and quantity for the firm.
- **Min Unit Cost (Grey Star):** Indicates the minimum average total cost and the associated quantity.
**Analysis:**
Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that (plus symbol) at the optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is (blank) the efficient scale.
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