4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve,
4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. ? 100 -+ 90 Mon Comp Outcome 80 Min Unit Cost PRICE (Dollars per razor) ATC g 20 MC MR Demand 0 10 20 30 70 80 90 100 QUANTITY (Thousands of razors) Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that * at the optimal quantity for each firm. Further, the quantity the firm produces in long-run equilibrium is the efficient scale. True or False: This indicates that there is a markup on marginal cost in the market for razors. O True O False Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of the externality implies that there is too little entry of new firms in the market. Grade It Now Save & Continue Continue without saving
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