Monopolistic COmpetition vs. Perfect Competition Monopolistic Competition vs. Pe
ID: 1116730 • Letter: M
Question
Monopolistic COmpetition vs. Perfect Competition
Monopolistic Competition vs. Perfect Competition MC ATC I R 4 Quantity The monopolistically competitive firm in the above figure wiil maxi- mize profits (or minimize losses) by producing a. Q2 and charging a price P6 b. 21 and charging a price P1. c. 22 and charging a price P. d. Q3 and charging a price Ps e. 24 and charging a price Ps The profit per unit of output for the firm in the above figure is c. P3 P. c. Not enough information has been given. A parfccty competiti e outcome in the above figure would exist at a price of a. P6 and an output level of 2z b. P4 and an output level of Q4 c. Pa and an ouiput level of 02. d· 7, and an output level of e. Ps and an ouput levcl of 03. The firm in the above figure compared to perfect competition b. overproduces an amount equal to 2:-21 c. underproduces an amount equal to 03-22 d. underproduces an anount equal to 23-21. e. overproduces an amount equal to 24-23. In the long run, a monopolistically competitive market will a. not produce at minimum long-run ATC b. charge a lower price than if the market was perfecuy competitive. c. produce in the range of diseconomies of scale. d. end to incur losses. e. produce too much and use uoo many resources relaive to a per- fectly competitive market.Explanation / Answer
Answer.)
Q1.) a.) Q2 and charging a price P6
Equilibrium quantity where MR = MC i.e. at Q2 unit output. Equilibrium price is derived from demand curve at equilibrium output level. note that equilibrium price would be P6.
Q2.) a.) P6 - P2
Profit = total revenue - total cost = Price x Quantity - ATC x Quantity
Profit = (P6 x Q2) - (P2 x Q2) = Q(P6 - P2)
Note (P6-P2) shows profit per unit of output.
Q3.) e.) P5 and an output level of Q3
In perfect competition, equilibrium price and quantity are derived from the intersection of MC and demand curve. Note in above figure that this is happening at price P5 and output Q3.
Q4.) c.) underproduces an amount equal to Q3 - Q2.
Q5.) b.) charge a lower price than if the market was perfectly competitive.
Note perfectly competitive firm would charge a price P5 and quantity Q3. Monopolistically competitive firm in long run would operate where ATC intersects demand curve. It's so because of free entry and exit.