09+Monopolistic+Competition

A beginning diagram is shown below.



The initial diagram has an ATC curve and a Demand and Marginal Revenue curve for a monopolistically competitive firm. Add a new layer. To the grid add an MC curve and label the profit maximizing price and quantity Po and Qo for the monopolist. Add another layer, draw and the label rectangle representing negative economic profit. Upload the completed diagram to this Wiki page, then in the explanation field explain explain whether the firm will stay open or shut down (show the calculations).

|| In order to find the profit maximization quantity, I needed to add the marginal cost curve to the graph. This is shown in red and in order to find the profit maximization I had to locate the point where the MC and MR curves intersect. After that I then proceeded to find the profit maximizing price which is the (Po) an about $6.50. For finding the negative profit I knew that to begin with the ATC was above the MR line making an economic loss. I found the price at that point minus the total cost which led me to -$1.00 and then multiplied that by the quantity which led me to -$30. Since there is an economic loss, in the long run firms will start to exit which will make demand start to increase again. The company will still produce in the short run however because they have their price which covers the AVC. ||  || ||
 * Num || Name || Diagram ||  ||
 * 1 || Sally Smith
 * 2 || John Doe

In this diagram where MR=MC, the quantity is at 36 and the the price is at $6. Total revenue is 36*6=$216. The firm faces a loss because the ATC curve is above the demand curve,but the firm will operate in the short run because the price is still covers average variable cost. AVC equals $2.5 x 36=$90. ||  ||
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