Question

 Fantastique Bikes is a company that manufactures bikes in a monopolistically competitive market. The following graph shows Fantastique's demand curve, marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC).

 Place the black point (plus symbol) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Then, use the green rectangle (triangle symbols) to shade the area representing the company's profit or loss.

 Given the profit-maximizing choice of output and price, the shop is making _______  profit, which means there are _______  shops in the Industry relative to the long-run equilibrium.

 Show the possible effect of this free entry and exit by shifting the demand curve for a typical individual producer of bikes on the following graph.

 Which of the following statements are true about both monopolistic competition and monopolies? Check all that apply.

•  Price equals average total cost in the long run.

•  Firms are not price takers.

•  Price is above marginal cost.

•  Firms can earn positive profit in the long run.

Answer 1