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Consider the food truck market, which is monopolistically competitive. It was in its long-run equilibrium. Explain,...

  1. Consider the food truck market, which is monopolistically competitive. It was in its long-run equilibrium. Explain, with an aid of a diagram, how the significant decrease in the number of tourists would affect the food truck operators in the short run and long run.

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Answer #1

Short Run Equilibrium Under Monopolistic Competition: from the chart, the firm will produce the quantity truck market operations (Qs) where the marginal cost - number of tourists (MC) curve intersects with the marginal revenue (MR) curve. The price is set based on where the Qs falls on the average revenue (AR) curve. The profit the firm makes in the short term is represented by the grey rectangle, or the quantity produced multiplied by the difference between the price and the average cost of producing the good.

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