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Earns positive short-run economic profit

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WataDine is one of a city's many restaurants that serve lunch and dinner in a monopolistically competitive market. Assume WataDine, as a typical restaurant in the city, is currently producing the profit-maximizing output level, and earns positive short-run economic profit.

a) How is monopolistic competition similar to each of the following market structures?

i. Perfect competition

ii. Monopoly

b) WataDine is currently earning short-run economic profits. Draw a correctly labeled graph for

WataDine in short-run equilibrium and show each of the following.

i. The profit-maximizing quantity, labeled QM

ii. The profit-maximizing price, labeled PM

c) Given that WataDine is currently earning short-run economic profits, what will happen to each

of the following in the long run?

i. WataDines economic profit. Explain.

ii. WataDines demand curve for its restaurant meals.

d) Assume WataDine is in long-run equilibrium.

i. Is WataDine taking advantage of its economies of scale? Explain.

ii. Would WataDine produce the productively efficient output? Explain.

Reference no: EM132478689

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