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Economics Graphs: Marginal Revenue

Question Group #1
Directions and/or Common Information: 

Before Bert & Gerry’s opened, Yogurt World was making abnormal profit, as illustrated in the graph labeled “Before”. They are facing a downward sloping demand curve because they are able to distinguish their product from other products, and thus have some control over pricing of their own product. However, since there are many good substitutes and free entry, they will not be able to make abnormal profit in the long run. These characteristics make Yogurt World a firm characterized by monopolistic competition. When Bert and Gerry’s opens, since Bert and Gerry’s is a good substitute for frozen yogurt, what happens to demand for Yogurt World’s product?

Looking at the “After” graph, what happens to marginal revenue?

Since ATC increases and prices decreases, Yogurt World will

M Medina

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