7a Monopolistic Competition 1. Graphical Picture STEP: 1 of 3 Crest is one firm of many in the market for toothpaste, which is in long-run equilibrium. Indicate which of the following graphs accurately reflects Crest's demand curve, marginal-revenue (MR) curve, average-total-cost (ATC) curve, and marginal-cost (MC) curve. (?) (? A B Price, Cost, Revenue Price, Cost, Revenue Quantity of Crest Toothpaste Quantity of Crest Toothpaste O A O B7b . Monopoly and Price Elasticity Consider the relationship between monopoly pricing and the price elasticity of demand. If demand is inelastic, total revenue would increase when a monopolist its price. As a result, total cost would . Therefore, a monopolist will I produce a quantity at which the demand curve is inelastic. Use the purple segment (diamond symbols) to indicate the portion of the demand curve that is inelastic. (Hint: The answer is related to the marginal- revenue (MR) curve.) Then use the black point (plus symbol) to show the quantity and price that maximizes total revenue (TR). 10 Demand Inelastic Demand Max TR Price Marginal Revenue 2 3 5 9 10 Quantity7c : . How short-run profit or losses induce entry or exit Citrus Scooters is a company that manufactures electric scooters in a monopolistically competitive market. The following graph shows the demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) for Citrus. Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. 500 450 400 Monopolistically Competitive Outcome 350 300 Profit or Loss PRICE (Dollars per scooter) 250 200 150 100 MR Demand 50 100 150 200 250 300 350 400 450 500 QUANTITY (Scooters) Given the profit-maximizing choice of output and price, Citrus Scooters is earning profit, which means there are sellers in the industry relative to the long-run equilibrium amount.Now consider the long run in which scooter 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 scooters on the following graph. (?) Demand PRICE(Dollars per scooter) Demand QUANTITY (Scooters) Which of the following statements are true for both monopolistically competitive markets and monopoly markets? Check all that apply. O Price equals average total cost in the long run. O Price is above marginal cost. O Firms can earn positive profit in the long run. O Firms are not price takers