Please dont copy and paste the answers One of your former peers starts up a firm after graduating NYUAD. However, he didn’t take Markets so is unsure if he is behaving optimally. He’s asked you for help. His firm faces monopolistic competition, has diminishing returns to its inputs and uses a fixed input. He is producing at a quantity such that P=MC, and he makes a positive profit. a. Draw the Demand curve, MR, MC, and ATC reflecting this situation on a graph. Label the quantity, price and profit of the firm under his strategy. b. Is his strategy maximizing his profits? Explain how he would do so if not. Label the quantity, price and profit of the firm under the optimal strategy on your graph in part a. c. He asks you about what you predict might happen to his profits in the future. What do you expect will happen to profits in this industry as we go to long run and why? What is the key assumption of monopolistic competition that gives you your conclusion?
Please dont copy and paste the answers
One of your former peers starts up a firm after graduating NYUAD. However, he didn’t take Markets so is unsure if he is behaving optimally. He’s asked you for help. His firm faces
a. Draw the Demand curve, MR, MC, and
b. Is his strategy maximizing his profits? Explain how he would do so if not. Label the quantity, price and profit of the firm under the optimal strategy on your graph in part a.
c. He asks you about what you predict might happen to his profits in the future. What do you expect will happen to profits in this industry as we go to long run and why? What is the key assumption of monopolistic competition that gives you your conclusion?
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