Please indicate all answers with corresponding colors and indicate explanations
ID: 1106861 • Letter: P
Question
Please indicate all answers with corresponding colors and indicate explanations for all answers.
Suppose that a firm produces wooden train engines in a monopolistically competitive market. The following graph shows its demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost 100 90 80 O 70 D 60 50 e 40 30 20 10 Mon Comp OutcomeExplanation / Answer
In the monopolistic competitive market, in the long-run equilibrium by the fact that each firm earn zero economic profit at the optimal quantity for each firm. Furthermore, the quantity produces in the long-run equilibrium is about 35 thousands of engine at the efficient scale.
Since in the industry in the long-run, each firm earns zero economic profit, because there are many firms. It shows that in the long-run there is excess capacity in the engine market.
It means the given statement is true in the long-run there is zero economic profit so there is excess capacity in the engine market.
The Monopolist competition may also be socially inefficient because there are too many or too few firms in the market. The presence of positive ( positive economic profit) externality implies that there is too much entry of new firms in the market.
The more new firm enters in the industry when there is positive economic profit.