Homework (Ch 10) 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 prot-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's prot or loss. (9 500 '1' 450 Monopolistically Competitive Outcome I1)) 400 350 300 Prot or Loss 250 200 150 100 PRICE, COSTS, AND REVENUE (Dollars per bike) MR Demand | i \\I . . 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bikes) Homework (Ch 10) Given the prot-maximizing choice of output and price, the shop is earning V prot, which means there are V 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 fora typical individual producer of bikes on the following graph. (2) Demand PRICE (Dollars per bike) D mand QUANTITY (Bikes) Homework (Ch 10) 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. negative Now consider the long run in which bike manufacturers are free to enter and positive market. zero 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)Homework (Ch 10) Given the prot-maximizing choice of output and price, the shop is earning v prot, which means there are V 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. (2) Demand PRICE (Dollars per bike) D mand QUANTITY (Bikes) Homework (Ch 10) Demand PRICE (Dollars per bike) D mand 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 prot in the long run. Firms can earn positive economic prot in the long run