Suppose that a monopolistically competitive restaurant is currently serving 260

Question

Suppose that a monopolistically competitive restaurant is currently serving 260 meals per day (the output where MR- MC). At that output level, ATC per meal is $10 and consumers are willing to pay $13 per meal. Instructions: Enter your answers as whole numbers. a. What is the size of this firm's profit or loss? b. VWill there be entry or exit? (Click to select) Will this restaurant's demand curve shift left or right? (Click to select) v c. Suppose that the allocatively efficient output level in long-run equilibrium is 210 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $9. What is the size of the firm's economic profit? d. Suppose that the allocatively efficient output level in long-run equilibrium is 210 meals. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $9. Is the deadweight loss for this firm greater than or less than $60? (Click to select) v

Explanation / Answer

a. The profit is $780

Q

ATC

P

TR

TC

Profit

260

10

13

3380

2600

780

b. Since there is good amount of profit, many new firms will enter and demand curve would shift to left because of increased supply

c.

Q

ATC

P

TR

TC

Profit

180

10

11

1980

1800

180

30

8

11

330

240

90

210

270

d.

Q

ATC

P

TR

TC

Profit

210

10

11

2310

2100

210

So, 270-210 =60

Q

ATC

P

TR

TC

Profit

260

10

13

3380

2600

780

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