The Thai food restaurant business in town M is monopolistically competitive. Suppose that each existing and potential restaurant has constant and fixed costs equal 40000 . The fixed cost is sunk in the short run but is not in the long run. Currently,

The Thai food restaurant business in town M is monopolistically competitive. Suppose that each existing and potential restaurant has constant $M C=10$ and fixed costs equal 40000 . The fixed cost is sunk in the short run but is not\nsunk in the long run. Currently, there are 10 Thai restaurants in this town. Each restaurant $i$ (existing and potential) faces a demand function given by $Q^{D}\left(P_{i}, \bar{P}\right)=\frac{400000 \bar{P}^{4}}{N \times\left(P_{i}\right)^{5}}$ where $P_{i}$ is its own price and $\bar{P}$ is the average price of all Thai restaurants in town M, which every restaurant treats as exogenously given (i.e. it doesn't account for the impact of its own price on this average price), and $N$ is the total number of restaurants. (a) Find the SR equilibrium. Do you expect entry or exit in the LR? Illustrate by graph. (b) Find the LR equilibrium. Illustrate graphically. Comment briefly on adjustment from the SR equilibrium found in (a) to the LR equilibrium.