In a perfectly competitive market, price equals marginal cost, but this condition is not satisfied for the
Question:
In a perfectly competitive market, price equals marginal cost, but this condition is not satisfied for the firm with the revenue and cost conditions depicted in Problem 25-2. In the long run, what would happen if the government decided to require the firm in Problem 25-2 to charge a price equal to marginal cost at the firm's long-run out- put rate?
Problem 25-2
Consider the diagram depicting the demand and cost conditions faced by a monopolistically com- petitive firm.
a. What are the total revenues, total costs, and economic profits experienced by this firm?
b. Is this firm more likely in short- or long-run equilibrium? Explain.
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Let me address both parts of Problem 252 before discussing the longrun implications of the government requiring the firm to charge a price equal to marginal cost at the firms longrun output rate Probl...View the full answer
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