Place the black point (plus symbol) on the graph to indicate the short-run profi
ID: 1208787 • Letter: P
Question
Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss. Given the profit-maximizing choice of output and price, the shop is making profit, which means there are shops in the industry relative to the long-run equilibrium. Now consider the long run in which bike manufacturers are free to enter and exit the market. Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph.Explanation / Answer
Given the above diagram: p*=250; q*=150; APC=225
Profits of the industry=TR- TC
=250*150- (225* 150)
=150*25= 3750
Profit can be depicted on the graph which will be the area above the price and below the MR (Marginal Revenue) curve.
B] When there is free entry demand curve will shift to the right.
When there is free exit demand curev will shift to the left.