Econ 98-Chiu Monopolistic Competition Worksheet Spring 2004Name & SID: Date:1. Andrew owns a Chinese restaurant that makes a yummy Kung-Pao chicken dish. Chinese restaurants are monopolistically competitive. Sketch Andrew’s firm graph in Stage 1. AssumeAndrew is making positive profits in Stage 1. Label Andrew’s price (Pa) and quantity (Qa).2. What are the main assumptions for monopolistic competition?3. What is the socially-optimal price and output? Does Andrew create a deadweight loss in Stage 1? Label P*, Q*.4. Lets fast forward to Stage 2. What happens to the market price and quantity of Andrew’s Chinese food? Label P2, Q2.Page 1 of 2Econ 98-Chiu Monopolistic Competition Worksheet Spring 2004Name & SID: Date:5. Calculate Andrew’s stage 2 profits.6. True, false, or uncertain. Deadweight loss is zero in stage 2 monopolistic competition because all firms in stage 2 monopolistic competition make zero profits.7. What is wrong with this monopolistically competitive (stage 2) firm graph?Page 2 of
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