The following graph shows the long-run average and marginal cost curves for a monopolistically competitive firm:

a. Assume the firm is in the short run and making profits. Draw in the demand and marginal revenue curves. Show output and price.b. Now let the firm reach long-run equilibrium. Draw in precisely the new demand and marginal revenue curves. Show output and price.c. Why must MR = LMC at exactly the same output at which LAC is tangent to demand?d. Contrast this firm?s output and price in long-run equilibrium with the price and output if this firm was a perfect competitor.

Transcribed Image Text:

LMC LAC Quantity Price and cost (dollars)