Price and cost (dollars per box) Suppose the market for cereal is monopolistical

Question

Price and cost (dollars per box) Suppose the market for cereal is monopolistically competitive and in long-run equilibrium. The demand (and marginal revenue) for a firm in this industry is illustrated in the graph to the right, along with that firm's average total cost and marginal cost of producing its brand of cereal. 158 MC Compared to perfectly competitive markets in the long-run, monopolistically competitive markets, such as that for cereal, are not allocatively efficient 123 ATC 105 because they produce with excess capacity For example, according to the graph, the monopolistically competitive firm has excess capacity of thousand boxes. (Enter a numeric response using an integer) 70 53 35 MR 60 120 180 240 300 360 420 480 540 600 Quantity of cereal (per week in 1000s)

Explanation / Answer

Answer

are not

with

210

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The firm is efficient MC=ATC but it is producing lower than that so it is having excess capacity.

The capacity=300-90=210 thousand boxes

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