Figure 16-8 The figure is drawn for a monopolistically-competitive firm Price MC

Question

Figure 16-8 The figure is drawn for a monopolistically-competitive firm Price MC 140 123.33 ATC 90 Demand 56.67 MR 100 133.33 Quantity 1. Refer to Figure 16-8. As the figure is drawn, is the firm in short as well as long run equilibrium 2. Refer to Figure 16-8. In order to maximize its profit, the firm will choose to produceunits 3. Refer to Figure 16-8. If the firm maximizes its profit, economic profits will be 4. Refer to Figure 16-8. When the firm is maximizing its profit, the markup over marginal cost amounts to 5.Refer to Figure 16-8. Given this firm's cost curves, if the firm were perfectly competitive rather than monopolistically competitive, then in a long-run equilibrium it would produce a. b. c. d. less than 100 units of output. between 100 and 133.33 units of output. 133.33 units ofoutput. more than 133.33 units of output. 6. Refer to Figure 16-S. In response to the situation represented by the figure, we would expect a. new firms to enter the market. b. some of the firms that are currently in the market to exit. c. this firm's profit to move from its current value toward a positive value. d. None of the above are correct

Explanation / Answer

1

Firm is in equilibrium where MR=MC. Condition remains same in short run as well as long run.

2.

Firm will choose to produce 100 units.

3.

Economic profit:

TR – TC

100*140 – 100*140

= 0

4.

Mark up = 140 -90

           = $ 50

5.

Perfectly competitive equilibrium P= MC

Hence, 133.33 units of output but firm will leave market due to loss.

6.

Since average cost is greater than the price level. Hence, some firm will exit market.

Right answer is : (b)

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