Masao’s Kitchen is one of the many restaurants in Waltham.

Masao’s Kitchen is one of the many restaurants in Waltham.

(a) Explain why the restaurant market in Waltham is monopolistically competitive. How does Masao’s differentiate itself?

(b) Suppose the demand for Masao’s is described by P = 20 − 1/16Q, and Masao’s cost function is C(Q) = 850 + 4Q + 1/240Q^2 where Q is the number of meals per hour. How many meals does Masao’s produce per hour? What is Masao’s hourly profit?

(c) How much profit does Masao’s earn in the long run? Explain, and show the long-run production decision in a graph. Note: You do not need draw demand and cost curves to scale with the specific functions in part (b). It is sufficient to draw a graph with the correct general features as long as all relevant curves and points are labeled and the relevant features are described.