(a)The market structure of the local grocery store industry is monopolistic competition. Suppose that currently each grocery store incurs a loss.

Draw a diagram for a typical grocery store to show this short-run situation. Show the area of loss in the diagram drawn. Describe this short-run situation. (10 points)

(b) Pfizer and Moderna spend huge sums of money each year to advertise their vaccines in an attempt to steal customers from each other. Suppose each year Pfizer and Moderna have to decide whether or not they want to spend money on advertising. If neither Pfizer nor Moderna advertises, each will earn a profit of $2 million. If both Pfizer and Modernaadvertise, each will earn a profit of $1.5 million. If Pfizer advertises and Moderna does not, Pfizer will earn a profit of $2.8 million and Moderna will earn $1 million. If Moderna advertises and Pfizer does not, Moderna will earn a profit of $2.8 million and Pfizer will earn $1 million.

Use a payoff matrix to depict this problem. (8 points)