An online software producer has fixed costs of $40,000 per month and her Total V

Question

An online software producer has fixed costs of $40,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below. Complete the table (TC, MC, TR, and MR), then answer Parts A and B.

Q            TVC          Price

10,000      $15,000    $52

20,000      20,000      4

30,000      30,000      3

40,000      50,000      2

50,000      80,000      1

If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work.)

What should be the production level if fixed costs rose to $60,000 per month? Explain.

Explanation / Answer

For profit maximisation MR=MC, Q=20000,

when fixed cost increased to 60000, firm will produce Q= 20000, but it will not have any economic profit since P=ATC

Q            TVC          Price FC MC ATC REVENUE profit MR ATC when FC=60000 10000 15000 $5 40000 0.5 5.5 $52,000 ($3,000) 2.8 7.5 20000 20000 4 40000 1 3 $80,000 $20,000 1 4 30000 30000 3 40000 2 2.333333 $90,000 $20,000 -1 3 40000 50000 2 40000 3 2.25 $80,000 ($10,000) -3 2.75 50000 80000 1 40000 2.4 $50,000 ($70,000) 2.8

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