Page 709 - Krugmans Economics for AP Text Book_Neat

Tackle the Test: Free-Response Questions
1. Draw a correctly labeled graph for a monopolistically 2. Draw a correctly labeled graph for a monopolistically
competitive firm that is unprofitable in the short run. Shade competitive firm in long-run equilibrium. Label the distance
the area that represents the firm’s losses. on the quantity axis that represents excess capacity.

Answer (7 points)

Price,
cost, Section 12 Market Structures: Imperfect Competition
marginal MC
revenue

ATC

ATC U
P U Loss

D U
MR U
Q U Quantity
Loss-minimizing quantity

1 point: Correctly labeled axes
1 point: Downward-sloping demand curve
1 point: Marginal revenue curve below the demand curve
1 point: Loss-minimizing quantity where MC = MR
1 point: Loss-minimizing price on demand curve above where MC = MR

1 point: U-shaped average total cost curve above the demand curve at every
quantity
1 point: Correct loss area shaded

module 67 Introduction to Monopolistic Competition 667