Lab
The Price-Setting Firm Graph
Each graph shows one firm that sets its own price: its demand curve, its marginal revenue, its marginal cost and its average total cost. Name the two downward-sloping lines and title both axes first. Then decide what the situation changes, move it, and drag the round point to the price and quantity the firm chooses.
Challenges
- In each situation, say whether the firm earns economic profit or takes a loss at your point, by comparing the price with ATC at that quantity.
- Find where demand meets MC on each graph. Why does the firm not produce there?
- In the long run for a monopolistically competitive firm, why does demand stop where it just touches ATC, and why is that point left of the lowest point of ATC?