Monopolistic Competition Slide 2 presents the quantity of output for a firm under monopolistic competition. Slide 3 explains the firm's pricing decision. Slide 4 illustrates the firm's marginal revenue at its level of output. Slide 5 illustrates total revenue. Slide 6 illustrates the firm's ATC. Slide 7 illustrates the firm's total costs as the firm's ATC x quantity of product. Slide 8 illustrates the area of total revenue above the firm's total costs. This area represents the firm's profit. The remainder of the slides pose questions and provide answers based on the graph.
Monopolistic Competition Price/ Costs/ Revenue in $s Quantity MR D ATC MC P Q Locate the intersection of marginal revenue (MR) and marginal cost (MC) and draw a line through the intersection from the demand curve (D) to the X axis (Quantity). This is the quantity of output for the monopolistically competitive firm.
Monopolistic Competition Price/ Costs/ Revenue in $s Locate the intersection of marginal revenue (MR) and marginal cost (MC) and draw a line through the intersection from the demand curve (D) to the X axis (Quantity). This is the quantity of output for the monopolistically competitive firm. Draw a line from the demand curve to the Y axis. This is the price the monopolistically competitive firm will charge. MC P ATC MR D Q Quantity
Monopolistic Competition Price/ Costs/ Revenue in $s The firm will produce output to the point where marginal revenue (MR) is equal to marginal cost (MC). If the firm produced output at a level less than where MR=MC, it would be forgoing revenue and, therefore, reducing its profits. If it produced output at a level greater than where MR=MC, its additional costs would be greater than its additional revenue, and it would be reduce its profits. MC P ATC MR MR D Q Quantity
Monopolistic Competition Price/ Costs/ Revenue in $s This is the total revenue (TR) received by the firm. It is the quantity of product sold multiplied by the product's price. MC P ATC MR D Q Quantity
This is the firm's average total cost (ATC) at this level of output. Monopolistic Competition Price/ Costs/ Revenue in $s This is the firm's average total cost (ATC) at this level of output. MC P ATC ATC MR D Q Quantity
Monopolistic Competition Price/ Costs/ Revenue in $s This area represents the firm's total cost (TC) at this level of output. MC P ATC MR D Q Quantity
This area represents the firm's profit. Monopolistic Competition Price/ Costs/ Revenue in $s This area represents the firm's profit. Total Revenue - Total Cost = Profit MC P ATC MR D Q Quantity
O Monopolistic Competition Price/ Costs/ Revenue in $s At what level of output will this firm operate? OL MC F E ATC D G H C K B A D MR O L M Quantity
O Monopolistic Competition Price/ Costs/ Revenue in $s What is the marginal revenue at this level of output? 0B MC F E ATC D G H C K B A D MR O L M Quantity
O Monopolistic Competition Price/ Costs/ Revenue in $s What price will this firm charge for its product? OE MC F E ATC D G H C K B A D MR O L M Quantity
O Monopolistic Competition Price/ Costs/ Revenue in $s The area of which rectangle is equal to total revenue? OEFL MC F E ATC D G H C K B A D MR O L M Quantity
O Monopolistic Competition What is the firm’s average total cost? OC F Price/ Costs/ Revenue in $s What is the firm’s average total cost? OC MC F E ATC D G H C K B A D MR O L M Quantity
O Monopolistic Competition Price/ Costs/ Revenue in $s The area of which rectangle is equal to the firm’s total cost? OCHL MC F E ATC D G H C K B A D MR O L M Quantity
O Monopolistic Competition Price/ Costs/ Revenue in $s Is the firm making profits or incurring losses? making economic profit MC F E ATC D G H C K B A D MR O L M Quantity
O Monopolistic Competition Price/ Costs/ Revenue in $s The area if which rectangle is equal to profits or losses? CEFH MC F E ATC D G H C K B A D MR O L M Quantity