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Problem 3: Monopollstlc Competition [6 points] Suppose we are studying a coffee shop, that sells onlv coffee, and operates in a monopolisticallv competitive environment. This
Problem 3: Monopollstlc Competition [6 points] Suppose we are studying a coffee shop, that sells onlv coffee, and operates in a monopolisticallv competitive environment. This coffee shop sells coffee made from its own brand of coffee beans, known affectionately as "Power Beans". This coffee shop faces its own individual demand curve given by: Q9 2 120 30p Now suppose that in this example. the coffee shop has the total costs defined by: TC 2 40 + 2Q Note: I have not given vou the MC curve, but you can institutivelv gure out what the MC is by looking at the TC curve above. 11] Draw a figure here that includes: [2 points] a. The Demand Curve b. The MR Curve c. The MC Curve d. The ATC Curve 12] Given the market demand. and the coffee shop's total cost curve, what quantity.I cloes i1 choose to produce, what is the market price. and what are their shortrun profits? Shot all of vour work. [HINT: This question will take multiple steps. Start with what needs to be true for this firm to be profit maximizing] [3 points] 13] In the Long-Run. what would we expect to happen to the price of coffee for "Power Beans". assuming that this coffee shop does not leave the market? Explain why. [1 point]
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