Suppose that a company operates in the monopolistically competitive market for rugby kits. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the longrun monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. /'\\ K1\" 100 90 Mon Comp Outcome t: 80 70 60 Min Unit Cost 50 40 PRICE (Dollars per kit) 30 ATC :3 20 10 MR Qemanld 30 40 50 60 70 80 90 100 QUANTITY (Thousands of kits) Because this market is monopolistically competitive, you can tell that it is in longrun equilibrium by the fact that V at the optimal quantity Because this market is monopolistically competitive, you can tell that it is in longrun equilibrium by the fact that V at the optimal quantity for each firm. Further, the quantity the firm produces in longrun equilibrium is V the efcient scale. True or False: This indicates that there is excess capacity in the market for kits. O True 0 False Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of the V externality implies that there is too much entry of new firms in the market. Stargell and Schmidt are brewing companies that operate in a duopoly (twofirm oligopoly). The daily marginal cost (MC) of producing a can of beer is constant and equals $1.20 per can. Assume that neither firm had any startup costs, so marginal cost equals average total cost (ATC) for each firm. Suppose that Stargell and Schmidt form a cartel, and the firms divide the output evenly. (Note: This is only for convenience; nothing in this model requires that the two companies must equally share the output.) Place the black point (plus symbol) on the following graph to indicate the prot-maximizing price and combined quantity of output if Stargeil and Schmidt choose to work together. /5\\ 2.00 1.80 150 Monopoly Outcome 1.40 1.20 1.00 0.80 PRICE (Dollars per can) 0.60 0.40 0.20 0 60 120 180 240 300 360 420 480 540 600 QUANTITY (Cans of beer) When they act as a profit-maximizing cartel, each company will produce cans and charge $1.60 per can. Given this information, each firm earns a daily profit of $24.00 , so the daily total industry profit in the beer market is $48.00 . Oligopolists often behave noncooperatively and act in their own selfinterest even though this decreases total profit in the market. Again, assume the two companies form a cartel and decide to work together. Both firms initially agree to produce half the quantity that maximizes total industry profit. Now, suppose that Stargell decides to break the collusion and increase its output by 50%, while Schmidt continues to produce the amount set under the collusive agreement. Stargell's deviation from the collusive agreement causes the price of a can of beer to decrease V to l:] per can. Stargell's profit is now :] , while Schmidt's profit is now . Therefore, you can conclude that total industry profit V when Stargell increases its output beyond the collusive quantity