1.Suppose that a monopolistically competitive restaurant is currently serving 230 meals per day (the output

whereMR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal.

• What is the size of this firm's profit or loss?
• Will there be entry or exit?
• Will this restaurant's demand curve shift left or right? In longrun equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8.
• What is the size of the firm's profit?
• Suppose that the allocative efficient output level in long-run equilibrium is 200 meals. Is the dead-weight loss for this firm greater than or less than $60?LO5

2.Answer the following questions in detail use your economics textbook.

• What assumptions about a rival's response to price changes underlie the kinked-demand curve for an oligopoly? Why is there a gap in the oligopoly's marginal-revenue curve?
• How does the kinked-demand curve explain price rigidity in oligopoly?
• What are the shortcomings of the kinked-demand model?LO7