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Describe the two characteristics of the long-run equilibrium in a monopolistically competitive market. Explain why a monopolistically competitive firm will produce at less than the

Describe the two characteristics of the long-run equilibrium in a monopolistically competitive market. Explain why a monopolistically competitive firm will produce at less than the efficient scale in the long run. (6 marks)

11. The data for two firms (Firm 1 and Firm 2) are given below. There is no fixed cost.

P

Q

TR

MR

TC

MC

Profit

45

1

10

40

2

20

35

3

30

30

4

40

25

5

50

20

6

60

15

7

70

10

8

80

a. Complete the above table. (4 marks)

b. If the market were perfectly competitive, what would the price and quantity be? (2marks)

c. If the two firms collude and form a cartel, what is the joint profit-maximizing level of output and price? (4 marks)

d. If the two firms split the market evenly, what would be Firm 1's production and profit? (2 marks)

e. What would happen to Firm 2's profit if it increased its production by one unit while Firm 1 stuck to the cartel agreement?

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