Chapter 10 Qui - Monopolistic competition in the short run and the long run - :)

2. Monopolistic competition in the short run and the long run 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). 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 Monopolistically Competitive Outcome 400 350 300 Profit or Loss ATC PRICE, COSTS, AND REVENUE (Dollars per bike) 250 200 150 10 50 MC MR Demand 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bikes) Given the profit-maximizing choice of output and price, the shop is earning profit, which means there are shops in the industry than in long-run equilibrium.Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of easy 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 monopoly? Check all that apply. Firms are not price takers. Price is above marginal cost. Firms earn zero economic profit in the long run. O Firms can earn positive economic profit in the long run