Question 1 D. Assume that the cellular telephone industry is monopolistically competitive
a. Assume that cellular telephone manufacturers are earning short-run economic profits. Draw a correctly labeled graph for a typical firm in the industry and show each of the
following
1. The profit-maximizing output and price
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it. The area representing economic profit
b. At the profit maximizing price you identified in part (a), would the typical firm's demand curve be price inelastic? Explain.
c. Given the information in part (a), what happens to the demand curve for the typical firm in the long run? Explain.
d. Using a new correctly labeled graph, show the profit-maximizing output and price for the typical firm in the long run.
e. Does the typical form produce an output level that minimizes its average total cost in the long run?
f. In long-run equilibrium, does the typical firm produce the allocatively efficient level of output? Explain.