Kitsch Bikes is a company that manufactures bikes in a monopolistically competit

Question

Kitsch Bikes is a company that manufactures bikes in a monopolistically competitive market. Assume that Kitsch is operating in the short run. The following graph shows Kitsch's demand curve (Demand), marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC) Place the grey point (star symbol) on the graph to indicate the profit-maximizing price and quantity for the company. Drop lines will extend to both axes automatically. Then use the red rectangle (cross symbols) to shade the area representing the company's profit or loss PRICE (Dollars per bike MonComp Outcome 400 360 320 280 240 200 160 120 80 40 MC Profit/Loss ATC MR Demand 4 8 12 16 20 24 28 32 36 40 peryearl Hel Clear All QUANTITY (Thousands of bikes per yearHelpClear All

Explanation / Answer

Sine the price of $240 is greater than average total cost, the firms will not enter the market but exit. This will continue till ATC falls or demand increases so that the price is just equal to ATC.

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