If you recently went backpack shopping, you might have noticed that the market for backpacks satisfies all the characteristics of a monopolistically competitive market: similar but not identical products, free entry and exit, many companies competing with each other. For this question, you are going to consider one famous backpack producing X company: a. Consider the long run equilibrium in the market for backpacks. Illustrate X Company's situation in this long run equilibrium. b. Now suppose X Company initiates a new advertisement campaign, which makes their backpacks more popular among college students. How does the successful advetisement campaign affect X Company's profit? Illusrate by drawing the average total cost, marginal cost, marginal revenue, and demand functions of X Company c. Assume that X Company's successful advertisement campaign inspires brand loyalty among their customers. How do brand loyalty impact the long run situation of X Company?
d. Finally assume that eventually Fjallraven loses the loyalty of their customers. Their customers begin switching to alternative products. Illustrate the new long run equilibrium for X Company.