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4. Is monopolistic competition efficient? Suppose that a firm produces wooden train engines in a monopolistically competitive market. The following graph shows its demand curve,

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4. Is monopolistic competition efficient? Suppose that a firm produces wooden train engines in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve 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 00 Mon Comp Outcome 30 00 Min Unit Cost PRICE (Dolars per engine) 50 ATC 20 10 MC MR Demand 0 00 100 20 30 40 00 70 10 QUANTITY (Thousands of engines) Because this markant is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is minimum average total cost. at the the True or False: This indicates that there is a markup on marginal cost in the market for engines. True False Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too much entry of new firms in the market. Grade It Now Save & CO

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