Assignment: Monopolistic Competition
Exhibit shows the short-run demand and cost conditions for a firm under Monopolistic Competition. Replicate the graph. Label the curves and axis.
Problem 1: What level of output will maximize the firm’s profit?
Problem 2: What price will the firm charge?
Problem 3: How much revenue will the firms receive in this situation? What is its total cost? Profit? On your graph, shade the area that represents profit and total cost.
Problem 4: How will the situation change in the Long Run?
Hint: Your answer should explain what happens to demand curve in the Long Run. See Lecture notes.
