Suppose that a monopolistically competitive restaurant is currently serving 230

Question

Suppose that a monopolistically competitive restaurant is currently serving 230 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. Will there be entry or exit?  (Click to select)EntryExit.      

Will this restaurant’s demand curve shift left or right?  (Click to select)RightLeft.

c. Assume that the allocatively efficient output level in long-run equilibrium is 200 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 profit? $.

d. Suppose that the allocatively efficient output level in long-run equilibrium is 200 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 $40? (Click to select)Less thanGreater than.

Explanation / Answer

a. $3 profit perv meal.

b. There will be entry

   demand curve will shift left

c. In the long run the firm will be earnibg 0 profit, so the information about what the firm is charging and what the MC for 180th meal are irrelevant information for this question.

d. The deadweight loss for this firm less than $40. The difference betweem marginal Benefit amd marginal cost is: $11 - $9 = $2. The deadweight loss between 180 and 200 meals is $2*20 = $40. But the MC rising for all of these units and the demand curve falling, the deadweight loss would have to be smaller.

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