a) Assume that Sleek is currently earning short-run financial profit. On a appropriately labeled diagram, present Sleek’s profit-maximizing output and price, as well as the area representing profit.

b) What happens to Sleek’s price, output, and also profit in the lengthy run? describe this adjust in words, and also show that on a new diagram.

c) mean that gradually consumers become an ext focused top top stylistic differences among shoe brands. Just how would this readjust in attitudes impact each this firm price elasticity the demand? In the lengthy run, how will this adjust in demand impact Sleek’s price, output, and also profit?

d) in ~ the profit-maximizing price you figured out in part(c), is Sleek’s need curve elastic or inelastic? Explain.




You are watching: Sleek sneakers co. is one of many firms in the market for shoes.

*

a) The chart is presented below: b) Whenfirmsinmonopolisticallycompetitivemarketgainsupernormalprofitintheshortterm,newfirmswillenterthemarket.Someof ourexistingcustomerswillbuythenewfirm.Thus,firmsthathavesupernormalprofitswouldsufferalackofcustomersandthefirmdemandcurvewillshifttotheleftfromAR0=D0DandMtoAR1D1D1anduntilallfirmsinmonopolisticallycompetitivemarketmakenormalprofitsmarketinlong-term. DiagramaboveshowstheadjustmentofSleekfromsupernormalprofittonormalprofitinthelongtermbecauseoftheentryofnewfirmsintothemark (A)Intheshortterm,theequilibriumreachedwhenmarginalcostsequalmarginalrevenue(MC=MR0)atpointE0.AtthepointE0,thequantityofoutputis20unitsandthepriceisRM10.SleekhavesupernormalprofitofRM100(TR(RM200)-TC(RM100)). (B)ThesupernormalprofitsenjoyedbySleekwillattractnewfirmsintothemarketandcausethedemandcurveandmarginalrevenuecurvesshifttotheleftfromAR0=D0D0andMR0toAR1=D1D1andMR1 Inthelongterm,thenewequilibriumreachedwhenmarginalcostsequalmarginalrevenue(MC=MR1)atpointE1.AtpointE1,thequantityofoutputis15unitsandthepriceisRM8.Totalrevenueissametothetotalcost,thatisRM120.Thus,inthelongterm,Sleekwillmakenormalprofitsandnonewfirmswillenterthemarket....


See more: Proving That Root 4 Is The Square Root Of 4 A Rational Number

ts,andmuchlesscommonwithhomogeneousgoods. Buyersarewillingtopaymorefortheshoesbecausetheyviewtheshoesasbeingmoredifferentthantheotherwisewould.Ifso,itwouldmakemarketslesscompetitiveandSleek’sdemandcurvesmoreelastic,andthiswouldleadfirmstochargehigherprice.But,advertisingmightmakeeasierforcustomertofindtheSleekofferingthebestprice,inthiscase,itwouldmakemarketsmorecompetitiveandfirm’sdemandcurvesmoreelastic,whichwouldleadtolowerprice,so,theoutputandtheprofitwillincrease.Inthelongrun,thedemandofthewilldecrease,Advertisingbyallfirmsmightdecreasethedemandforanyonefirm’sproductandalsodemandofSleek’sshoes,sothedemandcurvesofSleek’sshoesbecomemoreelastic. (D)TheSleek’sdemandwillbecomemoreelastic.BecauseadvertisingmightmakeeasierforcustomertofindtheSleekofferingthebestprice,itwouldmakemarketsmorecompetitiveandfirm’sdemandcurvesmoreelastic,whichwouldleadtolowerprice