# Monopolistic Competition Calculations by mls18743

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```									                    Unit Three Lesson 12 Activity One
3-12-1
Monopolistic Competition

Name: _____________________
Date: ______________________
Class: ______________________

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8.   In the beach city of Santa Barbara, California, there are seven bathing suit
stores, each with the same schedule of costs and each facing an identical
demand curve. Swim N Style is a typical store:
Suits sold
(per hour)        Price       Total Cost
1             \$68           \$70
2              66            80
3              64            85
4              62            90
5              60           100
6              58           115
7              56           136
8              54           164
9              52           200
10              50           245
a) Calculate total revenue, marginal revenue, marginal cost and average
cost at each level of sales for the store.

b) If Swim N Style is a profit maximizer, what number of suits will it sell
per hour? What will its price and profit be?

c) How can you tell that the bathing suit market in Santa Barbara is not in
long- run equilibrium? What will happen because it is out of
equilibrium?

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9.   Seventeen new bathing suit stores enter the Santa Barbara market, joining
the seven that already existed. As a consequence, the demand schedule
facing Swim N Style (and all other stores) falls, while the cost schedules
remain constant as in Problem 8:

Suits sold
(per hour)         Price
1               \$31.50
2                28.50
3                25.50
4                22.50
5                19.50
6                16.50
7                13.50
8                10.50
9                 7.50
10                 4.50
a) What number of suits will Swim N Style sell now?_______________
b) What price will it charge, and what will its profit be?_____________
c) Is the market in long-run equilibrium now? Why?_______________
d) What is the average cost per swimsuit sold?____________________
e) How many swimsuits are sold in Santa Barbara each hour, and what is
the total cost incurred?______________________________________
f) From your calculations in Problem 1, identify the sales level at which
Swim N Style’s average cost would be a minimum. What is this
average cost?_____________________________________________
g) Suppose the number of swimsuits sold remained constant, but the
number of stores was reduced so that each was operating at its point of
minimum average cost. How many stores would be in operation?
What would be the total costs of all the stores taken together? Compare
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h) Summarize briefly what you have learned from this problem about the
efficiency of monopolistic competition

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