Lesson 03.10 - Lesson 03.10 Monopolistic Competition Question Jack and Diane own Enviromax a monopolistically competitive firm that recycles paper

Lesson 03.10 - Lesson 03.10 Monopolistic Competition...

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Lesson 03.10 Monopolistic Competition Question Jack and Diane own Enviromax, a monopolistically competitive firm that recycles paper products. Their demand, marginal revenue, and cost curves are shown in the diagram below . 1. If Enviromax wants to maximize profit, what price would they charge? 2. What is their profit per unit if they are operating at the profit maximizing output? 3. Assume now that the demand for recycled paper increases and that the company is earning short-run economic profits. Relative to this short-run situation, explain what happens to profits in the long run and why? 4. In the long run, will Enviromax produce the allocatively or productively efficient level of output? Explain. Answers 1. Profit maximization is at the quantity where the marginal revenue equals the marginal cost. The two curves intersect each other at Quantity = 10 and going to the demand curve at this quantity the charge $30. If Enviromax wants to maximize the price
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