MICROECONOMICS
MICROECONOMICS
11th Edition
ISBN: 9781266686764
Author: Colander
Publisher: MCG
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Chapter 14, Problem 21QE

a)

To determine

The quantity of output chosen by the firm.

b)

To determine

The average fixed cost of the monopolistic competitor.

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The diagram above represents a monopolistically competitive firm. Answer the questions below.  Is this firm operating in the short-run or long-run? How do you know?  Calculate this firm’s accounting profit.  From the diagram, what is the productively efficient output for this firm?  From the diagram, economies of scale are maximized at which output level? Explain.  From the diagram, what is the allocatively efficient output for this firm? Explain.
Suppose you manage a local grocery store, and you learn that a very popular national grocery chain is about to open a store just a few miles away. Use the model of monopolistic competition to analyze the impact of this new store on the quantity of output your store should produce (Q) and the price your store should charge (P). What will happen to your profits? Explain your reasoning in detail. How and why do profits change? What could you do to defend your market share against the new store?
You are hired as a consultant to a monopolistically competitive firm. The firm reports the following information about its price, marginal cost, and average total cost: P>MC, P<ATCP>MC, P<ATC   Which of the following statements are true about this firm and the market? Check all that apply. Some firms will exit the market.   This firm is in long-run equilibrium.   This firm is possibly maximizing profit.
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