Question 8 [12]

Using relevant diagrams, clearly explain (interpretation of the diagrams) the equilibrium situation of a monopolistically competitive firm in the short run and in the long run. Tip: Show the short-run equilibrium scenario (reflecting price and quantity) on one diagram and discuss the diagram (graph). Also show the long-run equilibrium scenario (reflecting price and quantity) on another diagram next to the first diagram and discuss the diagram (graph).

The graphs and the relevant curves will count 3 marks each, while the interpretation (discussion of the graphs) will count 3 marks each.