Suppose that a firm produces wool jackets in a monopolistically competitive mark

Question

Suppose that a firm produces wool jackets in a monopolistically competitive market. The following graph shows its demand (D) curve, marginal revenue (MR) curve, marginal cost (MC) curve, and long-run average total cost (LRATC) curve. Assume that all firms in the industry face the same cost structure Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if it operated in a perfectly competitive market. Note: Dashed drop lines will automatically extend to both axes. 100 Monopolistic Competition Outcome 70 TC Perfect Competition Outcome 9 40 30 O 20 MR 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of jackets) Compare the average total cost and the production level in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm by completing the following table Average Cost (Dollars per jacket) Production Level Under.. (Thousands of jackets) Monopolistic Competition Perfect Competition

Explanation / Answer

Monopolistoc comeptition produces at a point where MR=MC. Thus Q=50 and P=70

Under perfect competition P=Mc and thus firm produces at a point where P=MC=60 and Q=66

Monopolistic AVerage cost=70 at Q=50

Perfect competition Average cost=65 at Q=70

Monopolistic firms is producing fewer units as compared to perfect competition and Avg cost of monopolistic is higher As compared to perfectly competive market

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