1a. Graph the long run position of a firm in monopolistic competition. 1b. Graph the typical...

1a. Graph the long run position of a firm in monopolistic competition.

1b. Graph the typical monopolistic long run situation.

1c. Compare the two graphs and explain how they are similar.

Expert Solution

Answer : 1a) The long-run situation of a monopolistically competitive firm is shown by the following picture's diagram. In long-run a monopolistically competitive firm earn zero economic profit.

1b) The long-run situation of a typical monopolist is shown by the following picture's diagram. In long-run a typical monopolist earn positive economic profit.

1c) By comparing above two graphs we get some similarities between monopolistically competitive firm's long run situation and a typical monopolist's long run situation. These are following :

i) In both graph the demand curve is downward sloping.

ii) In both graph the MR curve lies below the demand curve.

iii) In both graph the profit-maximizing condition is MR = MC.

iv) In both graph at profit-maximizing output level the price is higher than MC.

v) In both graph the profit-maximizing output level is inefficient.

Thus, both the typical monopolist and a monopolistically competitive firm are similar in long-run.

Rahul Sunny answered 1 hour ago

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