The marginal revenue curve will also have an odd shape which is made up of two

The marginal revenue curve will also have an odd

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The marginal revenue curve will also have an odd shape which is made up of two segments i.e MR2F and GMR1 Because of the different elasticity above and below the price, a gap or vertical segment (FG) will exist in the MR curve Any changes in cost that occurs in this gap will have no effect on output and price (price rigidity) Equilibrium price is at P and equilibrium quantity is Q. If the marginal cost increases from MC1 to MC2, the equilibrium price and quantity will not change and still remains at P and Q respectively. This stability in price and quantity is called price rigidity Short run and long run equilibrium An oligopoly can face supernormal, subnormal and normal profit in the short run. However, due to barriers to entry, the firm will face supernormal profit in the long run. Exercises
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1. Answer the following questions based on the diagram given below. Price of Good X (RM) MC AC 18 15 11 9 5 AR 0 Quantity (units) 30 33 40 MR a) What market structure is this firm operating in? b) Determine the equilibrium output and price of good X. c) Calculate the total profit/loss to this firm. d) Is the firm operating in the short run or long run? Give your reason. e) Determine optimum output for the firm.
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