Suppose that a firm produces wool jackets in a monopolistically competitive mark

Question

Suppose that a firm produces wool jackets in a monopolistically competitive market. The following graph shows its demand curve (Demand), marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Assume that all firms in the industry face the same cost structure. Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place the red point (cross symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive market. (Dashed drop lines will automatically extend to both axes for each point.) PRICE (Dollars per jacket) 200 180 160 140 120 100 80 60 40 20 MonComp Outcome MC PC Outcome ATC Demand 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of jackets per month HelpClear AlL

Explanation / Answer

The long run ATC is where ATC touches the demand curve . This happens at cost $120.

The long run output is where MR meets MC. The long run output is 25 units. The difference in perfectly competitive and monopolistically compettive is knwon as dead weight loss

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