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5 . How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The

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5 . How short-run profit or losses induce entry or exit Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Piace the W on the graph to indicate the shortrun profitmaximizing price and quantity for this monopolistfcaiiy competitive company. Then, use the green rectangle Etri'angie symbois) to shade the area representing the company's profit or ioss. 500 - 45D Monopoiistically Competitive Outcome 400 350 Prot or Loss 300 250 200 PRICE (Dollars per bike) 150 100 100 150 200 250 300 350 400 450 500 an equal number of QUANTITY (Bikes) few er negative Given the profitmaxi Zing choice of output and price, the shop is making V profit, which means there are n positive shops in the industry relative to the longrun equilibrium. Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph. O Demand PRICE (Dollars per bike) Demand QUANTITY (Bikes) Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply. Firms earn zero profit in the long run. Price is above marginal cost. Firms can earn positive profit in the long run. Firms are not price takers

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