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Consider a firm in the monopolistically competitive market for daily U.S. newspapers. The firm faces an inverse demand curve given by: P = 12-2q,

 

Consider a firm in the monopolistically competitive market for daily U.S. newspapers. The firm faces an inverse demand curve given by: P = 12-2q, where the quantity q is measured in millions and the price P is measured in dollars. The total cost function of the firm is given by TC(q)= q +5 and the marginal cost is given by MC(q) = 2q. P 0 1. In the graph below, draw the firm's demand function, marginal revenue and marginal cost. Make sure to label each curve and each intercept. 9 2. What are the profit maximizing quantity and price? 3. At the firm's equilibrium, what is producer surplus, consumer surplus, and the firm's markup? 4. Is the firm producing the efficient quantity? Explain. 5. At the firm's equilibrium, is demand is elastic, inelastic, or unit-elastic? Explain. 6. At the efficient output, is the firm's demand is elastic, inelastic or unit-elastic? Explain. 7. At the efficient output, what total surplus? 8. As the market moves to the long-run equilibrium, will the number of newspaper sellers, the firm's profit and the firm's markup increase, decrease or stay the same? Explain.

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1 In the graph below draw the firms demand function marginal revenue and marginal cost Make sure to label each curve and each intercept Graph showing ... blur-text-image

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