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Question

1)A monopolistically competitive sneaker firm is currently in long run equilibrium.

a. Graph the firm in

long run equilibrium. Be sure to label all of the curves and the profit-maximizing price and quantity.

b. The price of rubber decreases. Rubber is a major component in the production of sneakers. Draw a new graph that shows the change in the profit maximizing price and quantity of sneakers. Be sure to shade the area of loss or profit.


2)A perfectly competitive potato farm is currently in long run equilibrium.

a. Graph the firm in long run equilibrium. Be sure to label all of the curves and the profit maximizing price and quantity.

b. The demand for potatoes increases. Draw a new graph that shows the impact on an individual firm. Be sure to shade the area of loss or profit.

c. Draw a new graph that shows how the firm and the industry adjusts to a new long run equilibrium.

d. How did the price and quantity in part A change in Part C? Explain your response.

Top Answer

1) a) In the long-run, the profit-maximizing quantity is Q and the price is P, where MR=MC=ATC. E is the point of... View the full answer

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