Question

4. is monopolistic competition efficient? suppose that a company operates in the monopolistically competitive market for rugby kits. the following graph shows the demand curve, marginal revenue (mr) curve, marginal cost (mc) curve, and average total cost (atc) curve for the firm. place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. next, place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. mon comp outcome min unit cost 0 10 20 30 40 50 60 70 80 90 100 100 90 80 70 60 50 40 30 20 10 0 price (dollars per kit) quantity (thousands of kits) demand mr mc atc because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. further, the quantity the firm produces in long-run equilibrium is the efficient scale. true or false: this indicates that there is a markup on marginal cost in the market for kits. true false monopolistically competitive markets may be socially inefficient due to the presence of too many or too few firms. the presence of the externality implies that there is too much entry of new firms in the market.

Answer 1

In monopolistic competition, firms do not achieve allocative efficiency because they do not produce at the minimum of their average cost curve and charge a higher price compared to perfectly competitive firms.

Step-by-step explanation:

In monopolistic competition, firms do not achieve allocative efficiency because they do not produce at the minimum of their average cost curve and set price equal to marginal cost. Instead, they produce where price is greater than marginal cost. This means that monopolistically competitive firms tend to produce a lower quantity at a higher cost and charge a higher price compared to perfectly competitive firms.

Answer 2

In the long run, firms in monopolistic competition will produce at the quantity where marginal cost (MC) equals marginal revenue (MR), and this quantity corresponds to the efficient scale.

In the long-run equilibrium, the quantity a firm produces is at the minimum point of its average total cost (ATC) curve, which represents the efficient scale.

In monopolistic competition, firms produce at a quantity where price is greater than marginal cost (P > MC). This implies a markup on marginal cost, and it's a characteristic of monopolistic competition.

Monopolistically competitive markets may not be socially efficient. There is a markup on price over marginal cost, and the quantity produced might not be the socially optimal quantity. This inefficiency is due to product differentiation and the lack of perfect competition.