| Question |
5. Draw a graph that illustrates the determination of price and output for a monopolistically competitive firm in the long run. In the same graph, show how price and quantity deviate from the outcome of a perfectly competitive market in long-run equilibrium. (Make sure you label all relevant axes, curves, and points and that the relation between the demand curve and the marginal revenue curve is drawn correctly.) 6. Draw two graphs next to each other demonstrating how a perfectly competitive firm adjusts to a decrease in market demand. Assume the the market is initially in a long-run equilibrium. Show the short-run and long-run adjustments taking place in the market and within the firm. (Make sure you label all relevant axes, curves, and points and that the price changes in both graphs are in proportion.) Briefly explain what drives the adjustments leading to long-run equilibrium. |
