1. Suppose a monopolistic competitor in long-run equilibrium has a constant marginal cost of $6 and faces the demand curve given in the following table:
Price ($) Quantity
10 0
9 1
8 2
7 3
6 4
5 5
4 6
3 7
a. What output will the firm choose? (Instructions: Enter your answer as a whole number.)
Output is ____ unit(s).
b. What will be the monopolistic competitor’s average fixed cost at the output it chooses? (Instructions: Enter your answer as a whole number.)
Average fixed cost is ____ $.
2. Why is the long-run market supply curve upward-sloping in an increasing-cost industry?
a. As output rises, average total costs shift down. Lower marginal costs decrease the price at which firms make zero profit in the short run but increase the long-run equilibrium price.
b. As output rises, average total costs shift up. Higher marginal costs increase the price at which firms make zero profit and increase the long-run equilibrium price.
c. As output rises, demand increases. Higher demand increases the price that firms can charge for their product.
d. As output rises, some firms gain more influence in the market because smaller firms cannot absorb the increases in costs, allowing remaining firms to raise price.