Monopolistic Competition
Consider a monopolistically competitive market with N firms. The following equations describe the demand, marginal revenue and cost for each firm.
Demand for one firm: q = (100/N) – p Total Cost: TC (q) = 50 + 5 * q
a) Write down a firm’s total revenue, marginal revenue, average total cost and marginal cost.
b) Show in a graph how N, the number of firms in the market, affects each firm’s demand curve.
c) How many units q does each firm produce? (This will be a function of the number of firms N.)
d) What price does each firm charge? (This will be a function of the number of firms N.)
e) How much profits does each firm make? (This will be a function of the number of firms N.) f) In the long run, how many firms will exist in this market?
