Average cost-marginal cost curves for representative firm

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The market for Banh Mi in Auckland CBD consists of 6 restaurants operating in monopolistic competition. Suppose that these firms face monthly fixed costs of $5,000 and marginal costs of $3.

a) Draw the average cost and marginal cost curves for a representative firm.

b) If the short run market price is $6 and each firm sells 2000 units per month, what will occur in the long run? Explain and show on a graph.

c) Suppose that Banh Mi become more popular as a lunch option, and market demand increases. Explain the short run and long run effects on the market, including price, firm-level quantity and number of firms. Use graphs to explain your answer.

Reference no: EM13798224

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