4 Is monopolistic competition efficient.docx - 4. Is...

This preview shows page 1 - 2 out of 2 pages.

The preview shows page 2 - 2 out of 2 pages.
4. Is monopolistic competition efficient?Suppose that a firm produces wooden train engines in a monopolistically competitive market. Thefollowing graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, andaverage total cost (ATC) curve.Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitiveequilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate theminimum average total cost the firm faces and the quantity associated with that cost.A firm in a monopolistically competitive market chooses its quantity of production by setting marginalrevenue equal to marginal cost, which occurs at 35,000 engines in this case. The firm will then chargethe maximum price that it can charge ($50 per engine), which is the price on the demand curve thatcorresponds to a quantity of 35,000 engines.The minimum average total cost occurs where the average total cost curve and the marginal costcurve intersect. This occurs at a price of $40 per engine and a quantity of 60,000 engines. The
End of preview. Want to read all 2 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Spring
Professor
N/A
Tags
Economics, Monopolistic Competition, average total cost

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture