Microeconomics (with Digital Assets, 2 terms (12 months) Printed Access Card) (MindTap Course List)
Microeconomics (with Digital Assets, 2 terms (12 months) Printed Access Card) (MindTap Course List)
12th Edition
ISBN: 9781285738352
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 11, Problem 1VQP
To determine

Represent the quantity output produced and price charged per unit by a monopolistic competitor graphically.

Expert Solution & Answer
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Explanation of Solution

The monopolistic market is a blend of monopoly and perfect competition. In the short run, the monopolistic market sets its price and quantity as a monopoly. Shown in figure 1 below.

Microeconomics (with Digital Assets, 2 terms (12 months) Printed Access Card) (MindTap Course List), Chapter 11, Problem 1VQP , additional homework tip  1

According to the above figure, market will produce at which MC equal MR or at the negative region of Ac, where price is greater than the marginal cost. As a monopoly, the monopolist gets a supernormal profit in the initial time. Attracted to this profit, other firms enter the market. And in the long run, it only attains a normal profit. Shown below in figure 2.

Microeconomics (with Digital Assets, 2 terms (12 months) Printed Access Card) (MindTap Course List), Chapter 11, Problem 1VQP , additional homework tip  2

The firms are attracted to the market, and they share the profit in the market that exists early. Then, the price of a good will decline, and it becomes equal to ATC. Then, the supernormal profit in the short run becomes normal profit in the long run.

Economics Concept Introduction

Monopolistic market: Monopolistic market is a market with many sellers producing differentiated products.

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