Question

1. Is monopolistic competition efficient? Suppose that a firm produces wooden train engines 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 quan tity 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 9C Mon Comp Outcome 80 70 Min Unit Cost 60 50 ATC 40 3C 20 MC 10 MR Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of engines) Because this market is a monopolistically competitive market, you can tell that it 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 excess capacity in the market for engines. O True OFalse Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of externality implies that there is too much entry of new firms in the market the

Answer 1

1. Is monopolistic competition efficient? Suppose that a firm produces wooden train engines 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 9C Mon Comp Outcome 80 70 Min Unit Cost 60 50 ATC 40 3C 20 MC 10 MR Demand 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of engines) 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 MORE THAN the minimum average total cost. True or False: This indicates that there is excess capacity in the market for engines. Yes. There is an excess capacity. O True False Monopolistic competition may also be socially inefficient because there are too many or too few firms in the market. The presence of externality implies that there is too much entry of new firms in the market. the business-stealing (aui6ua Jed s PRICE (

Answer 2

It is less than not more than in the second answer.