Asked by Nichole Stone on Jun 13, 2024
Verified
The market structure of the local pizza industry is best characterized by monopolistic competition. One Guy's Pizza is one of the producers in the local market. The demand for One Guy's Pizza is: 
The resulting marginal revenue curve is 
One Guy's cost function is: 
Determine One Guy's profit maximizing level of output and the price charged to customers. Is this a long-run equilibrium?
Profit Maximizing
This is the process or strategy businesses employ to achieve the highest possible profit, where marginal revenues equal marginal costs.
Monopolistic Competition
A market structure characterized by many firms selling products that are substitutes but not perfect substitutes, leading to some degree of market power for each firm.
- Comprehend the features of monopolistic competition such as differentiation of products and the influence over the market.
- Examine the state of long-term equilibrium within monopolistic competition, specifically focusing on the occurrence of zero economic profits and inefficiencies.
- Elucidate the effects of brand loyalty and demand elasticity within the context of monopolistic competition.
Verified Answer
DT
Deidre TurnerJun 18, 2024
Final Answer :
To determine One Guy's optimal output, we set One Guy's marginal revenue equal to marginal cost. This is 
The market price for One Guy's Pizza at this level of output is $18. This is not a long-run equilibrium because One Guy's is earning a positive profit. The positive profit will attract entrants into the local pizza industry.
The market price for One Guy's Pizza at this level of output is $18. This is not a long-run equilibrium because One Guy's is earning a positive profit. The positive profit will attract entrants into the local pizza industry.
Learning Objectives
- Comprehend the features of monopolistic competition such as differentiation of products and the influence over the market.
- Examine the state of long-term equilibrium within monopolistic competition, specifically focusing on the occurrence of zero economic profits and inefficiencies.
- Elucidate the effects of brand loyalty and demand elasticity within the context of monopolistic competition.
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