Question
14.Draw side by side graphs of a monopolistically competitive market and a firm operating in that market earning short run losses . (On graph 1
14.Draw side by side graphs of a monopolistically competitive market and a firm operating in that market earning short run losses.
(On graph 1 include: Price Axis, Quantity Axis, D, S1, S2, Qmc, Q2, Pmc, P2)
(On graph 2 include: Price axis, Quantity Axis, MC, MR, D, ATC Curve, AVC, Qmc, Pmc, ATC, DWL, MR2, D2, P2, Q2)
a.What must be true in order for this firm to be operating while incurring a loss?
b.How will the market graph adjust in the long run due to the short run losses?
c.What will happen to demand at the representative firm? What impact will this have on the economic profit earned by the firm?
d.Using your graphs, show the process that will result in the firm earning zero economic profit.
e.How does this long run equilibrium compare to that of a perfectly competitive firm?
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