How short-run profit or losses induce entry or exit

1. FILL OUT THE GRAPH (using the following information):

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.

Given the profit-maximizing choice of output and price, the shop is earning W profit, which means there are W shops in the industry than in long rium. negative positive Given the profit-maximizing choice of output and price, the shop is earning W profit, which means there are W shops in the industry than in long-run equilibrium. an equal number of fewer Given the profit-maximizing choice of output and price, the shop is earning W profit, which means there are W shops in the industry than in long-run equilibrium. O Demand PRICE (Dollars per bike) Demand QUANTITY (Bikes)Price equals average total cost in the long run. Price is above marginal cost. Firms are not price takers. Firms can earn positive profit in the long run. 500 450 Monopolistically Competitive Outcome 400 350 300 Profit or Loss 250 200 PRICE (Dollars per bike) 150 ATC 100 50 MC MR Demand 0 0 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bikes)