(Solved): Is monopolistic competition efficient? Suppose that a firm produces tennis racquets in a monopolis ...

Is monopolistic competition efficient?

Suppose that a firm produces tennis racquets in a monopolistically competitive market. The following graph shows its demand ( \( D \) ) curve, marginal revenue \( (M R) \) curve, marginal cost \( (M C) \) curve, and long-run average total cost \( (L R A T C) \) curve. Assume that all firms in the industry face the same cost structure. Place the tan point (dash symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next, place the purple point (diamond symbol) to indicate the point at which this firm would produce in the long run if operated in a perfectly competive market. Note: Dashed drop lines will automatically extend to both axes. Compare the average total cost and the production level in the long-run equilibrium for a monopolistically competitive firm and a perfectly competitive firm by completing the following table. Because this market is a monopolistically competitive market, the firm's average total cost in long-run equilibrium is the long-run average cost it would achieve as a firm operating in a perfectly competitive market. The production level of a monopolistically competitive firm in long-run equilibrium is the production level of a perfectly competitive firm. This difference in output is known as the of a monopolistically competitive firm.