4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for electric razors. 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. Nex 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 razor) 100 90 80 70 60 50 40 30 20 MC 10 ATC MR Demand 0 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of razors) Mon Comp Outcome * Min Unit Cost at the optimal quantity the efficient scale. Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that each firm. Further, the quantity the firm produces in long-run equilibrium is True or False: This indicates that there is excess capacity in the market for razors. True False 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 much entry of new firms in the market. the
4. Is monopolistic competition efficient? Suppose that a company operates in the monopolistically competitive market for electric razors. 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. Nex 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 razor) 100 90 80 70 60 50 40 30 20 MC 10 ATC MR Demand 0 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of razors) Mon Comp Outcome * Min Unit Cost at the optimal quantity the efficient scale. Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that each firm. Further, the quantity the firm produces in long-run equilibrium is True or False: This indicates that there is excess capacity in the market for razors. True False 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 much entry of new firms in the market. the
Chapter1: Making Economics Decisions
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Transcribed Image Text:4. Is monopolistic competition efficient?
Suppose that a company operates in the monopolistically competitive market for electric razors. 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. Nex
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 razor)
100
90
80
70
60
50
40
30
20
MC
10
ATC
MR
Demand
0
0
10
20
30 40 50 60
70
80
90 100
QUANTITY (Thousands of razors)
Mon Comp Outcome
*
Min Unit Cost
at the optimal quantity
the efficient scale.
Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that
each firm. Further, the quantity the firm produces in long-run equilibrium is
True or False: This indicates that there is excess capacity in the market for razors.
True
False
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 much entry of new firms in the market.
the
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