Question 4 for study guide packet #1

4. Suppose that a firm participates in a monopolistic competition market. The demand, marginal revenue and cost curves are the same for each firm. They are expressed by the following graph: 125 100 100 200 300 400 a) Determine the quantity and price this firm will adopt in the short run. Explain your answer. b) Is there any excess capacity in the equilibrium described in the previous question? What is the markup displayed by this firm equal to in the short run? c) What will happen to the price level adopted by this firm in the long run? Explain your answer and illustrate the long run equilibrium on a graph