Solve this macroeconomics 3. Begin with the long-term equilibrium in the monopolistic competition model as shownin figure 6-7. Consider what happens when industry demand, D, increases. Forexample, assume that the demand for automobiles increases globally due to higherincomes in a number of countries.a. Draw a figure similar to 6-7 for the Home market and show the shift in the D/NTcurve and the new short-run equilibrium. Label the new D/NT curve D/N(T)4, thenew demand curve d4, the new marginal revenue curve mr4 and the equilibriumworld price P(W)4 and quantity Q4.b. Given this new equilibrium to you expect existing firms to exit the industry ornew firms to enter? Provide the reasoning behind your answer.Draw and describe where the new long-run equilibrium occurs and explain whether the number of firms increases ordecreases versus your answers in a. and b., and discuss what happens to theelasticity of demand and new world price. Label the long-run demand curve d5,the marginal revenue curve mr5, the new D/NT curve D/N(T)5, and theequilibrium world price P(W)5 and quantity Q5.C. FIGURE 6-7PricepabilgLong-run equilibriumwithout tradeQ₁D/NTQ3Long-run equilibriumwith trademr3"d3ACMCQuantityLong-Run Monopolistic CompetitionEquilibrium with Trade The long-runequilibrium with trade occurs at point C. At thispoint, profit is maximized for each firm producingQ3 (which satisfies mr3 = MC) and charging pricepw (which equals AC). Because monopoly profit iszero when price equals average cost, no firms enteror exit the industry. Compared with the long-runequilibrium without trade (Figure 6-5), d, (alongwith mr3) has shifted out as domestic firms exitedthe industry and has become more elastic due tothe greater total number of varieties with trade,2N¹ > N¹. Compared with the long-run equilibriumwithout trade at point A, the trade equilibrium atpoint C has a lower price and higher sales by allsurviving firms.

A monopoly is a market structure in which a single firm controls the entire supply of a particular…

3. Begin with the long-term equilibrium in the monopolistic competition model as shown in figure 6-7. Consider what happens when industry demand, D, increases. For example, assume that the demand for automobiles increases globally due to higher incomes in a number of countries. a. Draw a figure similar to 6-7 for the Home market and show the shift in the D/NT curve and the new short-run equilibrium. Label the new D/NT curve D/N(T)4, the new demand curve d4, the new marginal revenue curve mr4 and the equilibrium world price P(W)4 and quantity Q4. b. Given this new equilibrium to you expect existing firms to exit the industry or new firms to enter? Provide the reasoning behind your answer. Draw and describe where the new long- run equilibrium occurs and explain whether the number of firms increases or decreases versus your answers in a. and b., and discuss what happens to the elasticity of demand and new world price. Label the long-run demand curve ds, the marginal revenue curve mr5, the new D/NT curve D/N(T)5, and the equilibrium world price P(W)5 and quantity Q5. C.