1.Suppose that a monopolistically competitive restaurant is currently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal.
What is the size of this firm’s profit or loss? Will there be entry or exit?
Will this restaurant’s demand curve shift left or right?
In long‐run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $8. What is the size of the firm’s profit?
Suppose that the allocatively efficient output level in long-run equilibrium is 200 meals. Is the dead-weight loss for this firm greater than or less than $60?
Show your work and explain in detail.
2. Answer all parts of the quests below and show your work for full credit.
What assumptions about a rival’s response to price changes underlie the kinked-demand curve for oligopolists?
Why is there a gap in the oligopolist’s marginal-revenue curve?
How does the kinked-demand curve explain price rigidity in oligopoly?
What are the shortcomings of the kinked-demand model?