In a perfectly competitive market, price equals marginal cost, but this condition is not satisfied for the firm with the revenue and cost conditions depicted in Problem 25-2. In the long run, what would happen if the government decided to require the firm in Problem 25-2 to charge a price equal to marginal cost at the firm's long-run out- put rate?

Problem 25-2

Consider the diagram depicting the demand and cost conditions faced by a monopolistically com- petitive firm.

a. What are the total revenues, total costs, and economic profits experienced by this firm?

b. Is this firm more likely in short- or long-run equilibrium? Explain.

Transcribed Image Text:

Revenues and Costs ($ per unit) 28 25 22 20 0 MR 100 160 Output (units per day) MC ATC