Supply of Beetles is elastic-monopolistically competitive

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Reference no: EM13770274

Suppose that a monopolistically competitive restaurant is currently serving 240 meals per day (the output where MR = MC). At that output level, ATC per meal is $13 and consumers are willing to pay $17 per meal. What is the size of this firm’s profit or loss? Will there be entry or exit? Will this restaurant’s demand curve shift left or right as a result?

1. A recent study determined the following elasticities for Volkswagen Beetles:

Price elasticity of demand = 2

Income elasticity of demand = 1.5

The supply of Beetles is elastic. Based on this information, are the following statements true or false? Explain your reasoning.

a. A 10% increase in the price of a Beetle will reduce the quantity demanded by 20%.

b. An increase in consumer income will increase the price and quantity of Beetles sold. Since price elasticity of demand is greater than 1, total revenue will go down.

Reference no: EM13770274

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