Use the graphs of a monopolistic competitor below to answer each of the followin

Question

Use the graphs of a monopolistic competitor below to answer each of

the following questions:

a. At what level of output will this firm operate?

b. What is marginal revenue at this level of output?

c. What price will this firm charge for its product?

d. The area of what rectangle is equal to total revenue?

e. What is the firm's average cost in equilibrium?

f. The area of what rectangle is equal to the firm's TC?

g. Is the firm making profits or incurring loss?

h. The area of what rectangle is equal to profits/loss?

Explanation / Answer

This firm will operate at level of output where MR = Mc i.e.point corresponding to K

A. OL is the equilibrium output

B. KL is the Marginal revenue as point K in on MR line

C. FL = OE. .Price is charged according to D curve ABOVE THE POINT OF EQUILIBIRUM K.

D. OEFL Because TR = Price x Quantity, OEx OL = OEFL

E. HL . Avergae cost is determined on ATC curve above Equilibrium point.

F. OCHL. TC = AC x Q = HL x OL

G. FIRM IS MAKING PROFIT because TR is more than TC.

H. Profit = TR - TC => OEFL - OCHL => CEFH

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