Monopolistic Competition Use the information below to answer the next 3 question

Question

Monopolistic Competition Use the information below to answer the next 3 questions. Brookside is a producer of golf clubs in a monopolistically competitive industry. The figure below shows the demand (D), marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves for Brookside. Price and cost (dollars per club) 220 ATC MC 80 160 140 20 100 MR 0 40 80 120 160 200 240 280 320 360 400 440 Quantity (thousands of golf clubs per year) 8. Assume that al firms in the golf club industry are identical. In the long run, a. Firms will enter the industry b. Firms will exit the industry c. The number of firms will remain unchanged d. The profit of Brookside will increase

Explanation / Answer

Answer

Option c

In the long run, monopolistic competitive firms earn zero economic profit and the price is equal to average total cost,

which is same for this firms also so there will be no change in the number of firms in the long run

ATC=P=$120 at MR=MC quantity

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