Forever 21 has closed all stores in Hong Kong due to fierce competition in the clothing retailing industry. 

a)What is the market structure of Forever21? What are the three attributes of competition to Forever 21?

 

b)Assuming that Forever 21 is running a loss, draw a diagram showing Forever 21’s demand curve, marginal revenue curve, average-total-cost curve, and marginal-cost curve in the long-run equilibrium. Label Forever 21’s loss-minimization output and price.

 

c)In the long-run equilibrium of the clothing industry, what happens to i) the economic profit of all existing firms; and ii) the price?

 

d)Draw a new diagram and indicate the “consumer surplus” derived from the purchase of the clothing industry on the new diagram.

 

e)Define “the deadweight loss”. Also, show the deadweight loss relative to the efficient level of output in the above new diagram.