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?
Will this restaurant’s demand curve shift left or right?
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?