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5 Cards in this Set

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Draw the short-run equilibrium for the firm in a monopolistic competition.
In the short run, a monopolistically competitive firm equates marginal revenue and marginal cost (point K). In this case, the firm sells the resulting output at a price (point F) above marginal cost. Total profits are represented by the shaded rectangle.
Draw the long-run equilibrium for the firm in a monopolistic competition.
In the long run, more firms enter the industry. As they do so, the demand curve facing each firm shifts to the left, as all market shares decline. Firms still equate MR and MC. Ultimately, however, the demand cure will be tangent to the ATC curve (point G), at which point price equals average total cost and no economic profits exist.
What is an industry in which one firm can achieve economies of scale over the entire range of market supply?
Natural monopoly
What are reductions in minimum average costs that come about through increases in the size (scale) of plant and equipment?
Economies of scale
What is the purpose of regulation?
1. To correct market failure in order to produce the best possible goods and services.

2. To deal with market power or their anti-competitive behavior.