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Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost
Suppose that a firm produces baseball bats in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve. Place a black point (plus symbol) on the graph to indicate the long-run 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. 100 -+ Mon Comp Outcome 80 70 8 Min Unit Cost PRICE (Dollars per bat) 50 ATC 30 20 MC MR Demand 10 20 30 40 50 60 70 80 80 100 QUANTITY (Thousands of bats) Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is the efficient scale. True or False: This indicates that there is a markup on marginal cost in the market for bats. TruePlace a black point (plus symbol) on the graph to indicate the long-run 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. 100 90 Mon Comp Outcome 80 70 Min Unit Cost PRICE (Dollars per bat) ATC 8 20 10 MC MR Demand 10 20 30 50 60 70 80 90 100 QUANTITY (Thousands of bats) Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is th P > ATC True or False: This indicates that there is a markup on marginal cost in the market for bats. MR > MC O True MR = MC False P = ATC Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of thePlace a black point (plus symbol) on the graph to indicate the long-run 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. 100 90 Mon Comp Outcome 80 70 8 Min Unit Cost PRICE (Dollars per bat) ATC 20 MC MR Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of bats) Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that 7 at the optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is the efficient scale. equal to True or False: This indicates that there is a markup on marginal cost in the market for bats. greater than O True less than O False Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the100 90 Mon Comp Outcome 80 70 Min Unit Cost PRICE (Dollars per bat) ATC 40 30 20 10 MC MR Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of bats) Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is the efficient scale. True or False: This indicates that there is a markup on marginal cost in the market for bats. True business-stealing product variety tion may also be socially inefficient because there are too many or too few firms in the market. The presence of the externality implies that there is too much entry of new firms in the market
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