Chapter 11 Problems and Applications 2 42 Consider the follo

Chapter 11: Problems and Applications (2) 4.2 Consider the following graph. per eup ATC

Solution

2.a) In competitive market equilibrium is occurred in the short run at P=MC. So here if it is perfectly competitive equilibrium is occurred at the quantity of 7 units.

In monopolistically competitive market equilibrium is occurred in the short run where MR=MC. Quantity is produced at MR=MC and price is charged on the demand curve according to this quantity. If the graph is for a monopolistically competitive market, quantity is produced at equilibrium is 5 units.

Here it is not possible to make a conclusion about whether it is a competitive market or monopolistically competitive market.

b) The graph is for short-run equilibrium as the demand curve is not tangent to the ATC and price is charged above the ATC so the firm is making a positive profit. If it was a long run equilibrium, demand curve should tangent with ATC and the firm makes 0 profit.

c) If the firm is in perfect competition in the long run equilibrium is occurred at P=MC=min(ATC). In the long run, quantity is 7 units in the perfect competition.