Econ 4th Edition by William McEachern

Exercise 2

MONOPOLISTIC COMPETITION AND PERFECT COMPETITION COMPARED Illustrated below are the marginal cost and average total cost curves for a small firm that is in long-run equilibrium.
a. Locate the long-run equilibrium price and quantity if the firm is perfectly competitive.
b. Label the price and quantity p 1 and q 1.
c. Draw in a demand and marginal revenue curve to illustrate long-run equilibrium if the firm is monopolistically competitive. Label the price and quantity p 2 and q 2.
d. How do the monopolistically competitive firm's price and output compare to those of the perfectly competitive firm?
e. How do long-run profits compare for the two types of firms?