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In: Economics

1. Draw and label a graph depicting a monopolistic market from perspective of a single firm....

1. Draw and label a graph depicting a monopolistic market from perspective of a single firm. Make sure you illustrate the profit maximizing price and quantity (10 points total).

a. Start with a graph depicting market equilibrium for the monopolistic market (5 points possible).

b. Modify the graph to demonstrate that the price at the profit maximizing level of output is below the average variable cost curve (5 points possible).

c. a. Is the firm making a profit or loss? Show this area on the graph in part 1 (10 points possible).

d. b. Will the firm decide to continue to produce in the short-run (or will it shutdown) (5 points possible)?

e. c. Will the firm decide to continue to produce in the long-run (or will it leave the market) (5 points possible)?

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Expert Solution

Rahul Sunny answered 2 years ago
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