The graph on the right presents the long-run costs and revenue for a monopolisti

Question

The graph on the right presents the long-run costs and revenue for a monopolistically competitive firm. The numbers in parentheses show the output level and the cost, respectively associated with various points. Use this information to determine the profit-maximizing output and excess capacity of this firm. What is the profit-maximizing output of this monopolistically competitive firm? (Round your answer to the nearest whole number.) What is the level of excess capacity for this monopolistically competitive firm? (Round your answer to the nearest whole number.)

Explanation / Answer

ans 1

profit is maxmised where MR=MC

at Q=5, MR=MC

ans 2

The amount by which the actual long-run output of the firm under monopolistic competition falls short of the socially ideal output is a measure of excess capacity which means un-utilised capacity.

firm can produce where ATC is minimum and it is socially ideal output with minimum cost, that's at Q=8

excess capacity is of 3 units.

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