QUESTION 5 (15 MARKS) Consider the table below for a monopolistically competitive firm offering a car wash service in a large urban city: Quantity (number of Total Marginal Average Marginal car washes per month) Price Revenue Revenue Total Cost Total Cost Cost Total Profit 1000 30 25 000 1100 29 26 000 111 1200 28 111 27 200 1300 27 11 28 500 1400 26 30 000 1500 25 32 200 1600 24 35 000 1700 23 11 38 500 1800 22 43 000 a) (5 marks) Complete the missing values in the table. b) (5 marks) Plot the demand, marginal revenue, marginal costs, and average costs curves in the space below: 40 30 Dollars per unit 20 10 - 10 11 12 13 14 15 16 17 18 19 NOV W N P 14 MacBook AirQUESTION 6 (10 MARKS) The diagram shown below depicts a monopolistically competitive firm when the industry is in its long-run equilibrium: MC PA LRAC Price, Costs PB MR Output a) (4 marks) Explain why free entry and exit implies that the long-run equilibrium is at point A. b) (3 marks) What is the significance of point B and price PB? c) (3 marks) Explain why long-run equilibrium in monopolistic competition can be considered to be less efficient than in perfect competition. Explain why that may not be the case. Page 10 of 10 NOV W N P 14 . ... "tv Ic) (3 marks) What is the profit maximizing number of washes (per month)? What is the profit maximizing price? Explain briefly how you got your answer. Q* = P* = d) (2 marks) List three ways this firm can differentiate its product from other car washes: 1. 2. 3. NOV W N P 14 .... Oul T