Chapter . Section 11, Problem 11

Step 1

Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

Question

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She should not lower her prices. Since the industry is in long-run equilibrium, each restaurant makes zero profit. The restaurant owner is producing at the point where marginal revenue and marginal cost are equal. Further, the price is equal to average total cost, so she makes zero profit. If she were to lower the price, she would attract more customers but any increase in quantity beyond the point where marginal revenue and marginal cost are equal will result in greater losses. For further review see section, “Monopolistic Competition in the Long Run.”
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Step 2

Question

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