Question

The graph shows the demand curve, marginal revenue curve, and cost curves of Bob's Best Burgers, a firm in monopolistic competition. Price and coat (dollars per burr) MC ATC Draw an arow at the profit-maximizing quantity to show the firm's markup. Because firms (of which Bob's is one) arewe would expect firms to A. breaking even; enter B. incurring an economic loss; increase demand in the burger market. MR C, making an economic profit; enter D. incurring an economic loss; exit Quantiy (urgers per >>>Draw only the objects specified in the question.

Answer 1

Solution:

The equilibrium condition for monopolistic competitive firm is Marginal revenue (MR) = Marginal cost (MC). As the graph shows, the MR and MC are equal at Q = 150 and corresponding price is $4.00.

Also, because ATC curve is above the demand curve i.e. cost is more than price, firms are incurring an economic loss and we would expect firms to exit the burger market. Hence, option D is correct.