f. Landscaping services
g. Home renovation firms
6. Draw two diagrams of a monopolistically competitive firm. In the
first, show the firm earning profits in the short run. In the second,
show the firm in long-run equilibrium earning zero profits. What
changed for this firm between the short run and the long run?
7. The following figure shows the revenue and cost curves for a
typical monopolistically competitive firm in the short run.
a. Note that the firm’s demand curve is shown to be quite
flat. Explain which assumption of monopolistic
competition suggests a relatively elastic demand curve for
each firm.
b. Label the profit-maximizing level of output for the firm
on the diagram.
c. At the profit-maximizing level of output, are profits
positive or negative? What area in the diagram represents
the firm’s profits?
d. Will firms enter or exit the industry? Explain.