Suppose the music industry has large upfront costs of production but the cost of producing each additional unit of output (song) is zero.

a. Please draw a diagram, showing the short run marginal cost curve and average cost curves (average fixed costs, average variable costs and average total cost) for a firm in such an industry.

b. Please give two reasons why monopolistic competition might be an appropriate model in this industry.

c. Please demonstrate the long-run monopolistic competition equilibrium for a firm in the digital industry.

d. Please show the (allocatively) efficient output on the diagram and please label it Qe.