Refer to the graph that shows Terrific Manufacturer a monopo

Refer to the graph that shows Terrific Manufacturer, a monopolistic competitor.

Based on this graph, answer the following four parts of question 1.

a. How many units would Terrific Manufacturer produce in the long run, and what price would be charged per unit?

b. In the long run, how much profit would Terrific Manufacturer make? Explain your answer.

c.  Suppose you were studying a perfectly competitive firm facing the same costs as shown in this graph. In the long run, how many units would this perfectly competitive firm produce and how much would the perfectly competitive firm charge per unit?

d. How much revenue would the perfectly competitive firm (facing the same costs as shown in this graph) make in the long run?

MC ATC $50 8 ?--. Demand IMarginal revenue 0 7 1011 Quanity Figure 11.3

Solution

1) Monopolist firm produces at a quantity where MR=MC. Thus. Firm will produce at Quantity=7 and price=50

B)since price=Average cost which makes profit=0. Becaus eof free entry amd exit all firms in monopolistic competition earns zero economic profit.

C)In perfectly competitive firm P=Min of AC

Thus Q=11 and price=48

D)Revenue=P*Q=11*48=528