Question

Suppose that a monopolistically competitive restaurant is currently serving 260 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal.

Instructions: Enter your answers as whole numbers.

a. What is the size of this firm’s profit or loss?

Answer:_

Will there be entry or exit?

       (Click to select)   Entry   Exit

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

       (Click to select)   Left   Right

c. Suppose that the allocatively efficient output level in long-run equilibrium is 210 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 $8. What is the size of the firm’s economic profit?

Answer:_

d. Suppose that the allocatively efficient output level in long-run equilibrium is 210 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 $8. Is the deadweight loss for this firm greater than or less than $90?

       (Click to select)   Greater than   Less than

Answer 1

b) Since the firm is making profit. So, more firms are attracted towards industry so there will new entry of the firm .

There will be entry of the firms

Since there are more competitors in the which will divide the consumers in the market. Consumers will shift to other restaurants too.

So demand curve for restaurants will shift to left.

C)   the allocatively efficient output level in long-run equilibrium is 210 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 $8.

We know that in a monopolistically competitive firm always earn zero economic profit in long run.

Size of economic profit in long run is $ 0 .

d) firm charges = $11 per meal

Marginal cost on 180th meal = $8 per meal

Difference = price charged - marginal cost

= 11- 8 = $3

Firm's allocatively efficient meals = 210 meals

Dead weight loss. = 3* ( 210- 180 )

=3*30 = $90

Dead weight loss is equal to $90

Restaurant is sewing = 260 meals/ day Aterrage total corf - peuce : $ a) Restaurant is sewing = 260 meals / day ATC pea meal = $ 10 per meal Consumes's willingness to pay = $ 12 pes meal Beofit 2. tofal meals x (Ponsumer's woelreyness hopay - Ate permal = 260x C 12-10) - 260x 2 = $620 proff $620 - The size of the firm.