Answer to Question #70864 in Microeconomics for siman

Question

Suppose a monopolistically competitive industry has 8 firms with identical costs.
(a) Given the data in the table below, calculate the long-run price and quantity
produced by the typical firm.
(b) Is the industry efficient or not? Draw a graph to illustrate your idea.
(c) Would this industry be more efficient if it were competitive?

Answer 1

Suppose a monopolistically competitive industry has 8 firms with identical costs.
(a) The long-run price equals the average total cost. And equilibrium quantity is found at the point where MR = MC.
(b) The industry is not efficient, because it is not perfectly competitive and deadweight loss exists.
(c) This industry would be more efficient if it were competitive, because there were no deadweight loss.