Assume that in shortrun equilibrium a particular monopolisti

Assume that in short-run equilibrium, a particular monopolistically competitive firm charges $10 for each unit of its output and sells 52 units of output per day. The average total cost (ATC) for those 52 units is $8.

Round your answers below to the nearest whole number.

How much revenue will it take in each day?

$

What will be its economic profit or loss?

(Click to select)

Neither profit nor lossProfitLoss of $

Next, suppose that entry or exit occurs in this monopolistically competitive industry and establishes a long-run equilibrium.

If the firm’s daily output remains at 52 units, what price will it be able to charge?

$

What will be its economic profit or loss?

(Click to select)ProfitNeither profit nor lossLoss of $

Solution

(a) Revenue = Price x quantity = $10 x 52 = $520

(b) Economic profit = Q x (P - AC) = 52 x $(10 - 8) = 52 x $2 = $104

(c) In long run, the firm produces at its lowest point of AC by equating P with AC. So, price charged = Average cost = $8

(d) Economic profit will be zero. In long run, a monopolistically competitive firm earns zero economic profit.