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Suppose we are studying a coffee shop, that sells only coffee, and operates in a monopolistically competitive environment. This coffee shop sells coffee made from
Suppose we are studying a coffee shop, that sells only coffee, and operates in a monopolistically competitive environment. This coffee shop sells coffee made from its own brand of coffee beans, known affectionately as "Power Beans". This coffee shop faces its own individual demand curve given by: QD = 120 - 30p Now suppose that in this example, the coffee shop has the total costs defined by: TC = 40 + 2Q 1. Given the market demand, and the coffee shop's total cost curve, what quantity does it choose to produce, what is the market price, and what are their short-run profits? Show all of your work. [HINT: This question will take multiple steps. Start with what needs to be true for this firm to be profit maximizing.] [5 points] 2. Draw a figure here that includes: [2 points] a. The Demand Curve b. The MR Curve c. The MC Curve d. The ATC Curve 3. In the Long-Run, what would we expect to happen to the price of coffee for "Power Beans", assuming that this coffee shop does not leave the market? Explain why. [1 point]
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