Suppose that a company operates in the monopolistically competitive market for rugby kits. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. 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.

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Chapter1: Making Economics Decisions
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4. Is monopolistic competition efficient?
Suppose that a company operates in the monopolistically competitive market for rugby kits. The following graph shows the demand curve, marginal
revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm.
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.
(?)
PRICE (Dollars per kit)
100
90
80
70
60
50
40
30
20
10
0
MC
0
10
20
ATC
MR
Demand
30 40 50 60 70
QUANTITY (Thousands of kits)
80
90
100
+
Mon Comp Outcome
Min Unit Cost
Transcribed Image Text:4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for rugby kits. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. 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. (?) PRICE (Dollars per kit) 100 90 80 70 60 50 40 30 20 10 0 MC 0 10 20 ATC MR Demand 30 40 50 60 70 QUANTITY (Thousands of kits) 80 90 100 + Mon Comp Outcome Min Unit Cost
Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that
firm. Further, the quantity the firm produces in long-run equilibrium is
the efficient scale.
True or False: This indicates that there is a markup on marginal cost in the market for kits.
True
the
False
at the optimal quantity for each
Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of
externality implies that there is too little entry of new firms in the market.
Transcribed Image Text:Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that firm. Further, the quantity the firm produces in long-run equilibrium is the efficient scale. True or False: This indicates that there is a markup on marginal cost in the market for kits. True the False at the optimal quantity for each Monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. The presence of externality implies that there is too little entry of new firms in the market.
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