Question

4. Is monopolistic competition efficient? Suppose that a firm produces polo shirts 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. ' Mon Comp Outcome Min Unit Cost PRICE (Dollars per shirt) MR Demand 0 H + 0 70 80 90 100 10 20 30 40 50 60 QUANTITY (Thousands of shirts) 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, a monopolistically competitive firm's average total cost in long-run equilibrium is the minimum average total cost. True or False: This indicates that there is a markup on marginal cost in the market for shirts. True o False Monopolistic competition 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 little entry of new firms in the market.

Answer 1

4. Is monopolistic competition efficient? Suppose that a firm produces polo shirts 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. ' Mon Comp Outcome Min Unit Cost PRICE (Dollars per shirt) MR Demand 0 + 0 70 80 90 100 10 20 30 40 50 60 QUANTITY (Thousands of shirts) Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that p = ATC at the optimal quantity for each firm. Furthermore, a monopolistically competitive firm's average total cost in long-run equilibrium is GREATER THAN the minimum average total cost. True or False: This indicates that there is a markup on marginal cost in the market for shirts. True ITS A TRUE STATEMENT . False Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of the PRODUCT VARIETY externality implies that there is too little entry of new firms in the market.

Answer 2

Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of thebusiness-stealing   externality implies that there is too much entry of new firms in the market.