Davis owns a restaurant that sells fried chicken in a monopolistically competiti

Question

Davis owns a restaurant that sells fried chicken in a monopolistically competitive market. The graph to the right depicts the demand and marginal revenue for his fried chicken. Suppose that Davis's restaurant is maximizing profits at 30 servings of fried chicken (per day). Assume that restaurants in this market are earning positive economic profits in the short run. Use the three-point curve drawing tool to add Davis's average total cost (ATC) curve to the graph. Properly label this curve. Carefully follow the instructions above, and only draw the required objects.

Explanation / Answer

Price of the product is where the vertical line drawn from 30 units intersects demand line i.e. $1.5.

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