Answer to Question #280884 in Microeconomics for Bri

Question

Suppose the Market for ice cream is a monopolistic competition industry. Assume that the market is at the long term equilibrium.

draw two graphs. On the first one draw the demand and the market supply and identify the equilibrium point. On the second, draw the AVC, ATC, AFC, and MC curves as well as the marginal revenue cure for one firm.

suppose now that the demand decreases. Explain the consequences in the short run and in the long run.

Answer 1

The market demand is a downward-sloping curve, while the market supply is an upward-sloping curve, they intersect in equilibrium point.

AVC, ATC and MC curves are U-shaped, AFC curve is downward-sloping, and the marginal revenue MR curve is a downward-sloping line for one firm.

The demand decreases, the equilibrium price and quantity will decrease too.