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2. A monopolistically competitive firm produces 100 units of output per period, selling each unit for...

2. A monopolistically competitive firm produces 100 units of output per period, selling each unit for $75. Marginal revenue and marginal cost of the one-hundredth unit are each $50. Average total cost is $60. a) Does this situation correspond to short-run equilibrium? Why or why not? b) Does this situation correspond to long-run equilibrium? Why or why not? Draw a graph to support your answer. You can draw the graph by hand but label all axes and curves clearly.

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Answer #1

This is a short run situation because , in the short run the monopolistic firms earn positive profits and in the long run they earn zero economic profit. Here the firm clearly earns a positive profit so it is in the short run.

Profit

  

  

=60*100

=6000.

Profit= 7500-6000

=1500

  

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