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Monopolistically competitive industry

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See attached. I need assistance in the following:

a. Identify the following on the graph and calculate
i. Profit-maximizing output level
ii. Profit-maximizing price
iii. Total revenue
iv. Total Cost
v. Total profit or loss

b. What is likely to happen in this industry in the long run?

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Solution Preview

a. i. Profit-maximizing output level is whenever Marginal Revenue (MR) = Marginal Cost (MC).
From the graph, you can see when the two curves intersect, quantity (units of output sold) is 15. Therefore, 15 is the profit maximizing output level.

ii. To get Profit-maximizing price, at output = 15, go up to the demand curve (draw a straight line going upward at 15). The line crosses demand curve at 13 on the vertical axis. This firm will charge that ...

Solution Summary

This solution discusses how firms are trying to differentiate their products in the monopolistically competitive industry. If they successfully differentiated their products, they can behave like a monopoly by capturing the whole market. As a monopoly, firms are able to charge at a higher price according to demand and making more profits.

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