Short run and long run behavior of monopolistic competitive firms.
The Monopolistic Competition Model
a) List the four assumptions for the Monopolistic competition model.
b) Draw a diagram that shows a representative firm in a monopolistically competitive market that is experiencing short-run economic profits. Label the areas that represent total revenue, total costs, and the profit. (For simplicity, only draw the average total cost curve; you need not draw the average variable cost curve.)
c) Now elucidate how the marketplace will adjust in the long run and draw a corresponding graph for the representative firm in the long run. (describe your answer.)