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Producing the profit-maximizing output level

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WataDine is one of a city's many restaurants that serve lunch and dinner in a monopolistically competitive market. Assume WataDine, as a typical restaurant in the city, is currently producing the profit-maximizing output level, and earns positive short-run economic profit.

(a) How is monopolistic competition similar to each of the following market structures?

(i) Perfect competition

(ii) Monopoly

(b) WataDine is currently earning short-run economic profits. Draw a correctly labeled graph for WataDine in short-run equilibrium and show each of the following.

(i) The profit-maximizing quantity, labeled QM

(ii) The profit-maximizing price, labeled PM

(c) Given that WataDine is currently earning short-run economic profits, what will happen to each of the following in the long run?

(i) WataDine's economic profit. Explain.

(ii) WataDine's demand curve for its restaurant meals.

(d) Assume WataDine is in long-run equilibrium.

(i) Is WataDine taking advantage of its economies of scale? Explain.

(ii) Would WataDine produce the productively efficient output? Explain.

Reference no: EM132519210

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