Assume that the skateboard industry is monopolistically competitive.
Assume that skateboard 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:
-The profit maximizing output and price.
-The area representing economic profit.
At the profit maximizing price you identified in part a, would the typical firm’s demand curve be price inelastic? Explain
Given the information in part a, what will happen to the industry in the long run? Explain.
Using a new, correctly labeled graph, show the profit maximizing output and price for the typical firm in the long run.
Does the typical firm produce an output that minimizes average total cost in the long run?
In long-run equilibrium, does the typical firm produce the allocatively efficient level of output? Explain.