Suppose that a monopolistically competitive firm must build a production facilit

Question

Suppose that a monopolistically competitive firm must build a production facility in order to produce a product. The fixed cost of this facility is FC = $24. Also, the firm has constant marginal cost, MC = $3. Demand for the product that the firm produces is given by P = 27-3Q.

a) Fill in the table below. If any of your values have decimals, you may round to only one numeral after the decimal (nearest 10th of a dollar).

b) How much output will this firm produce if it maximizes profit?

c) What price should this firm charge if it wants to maximize profit?

Quantity of Output Price Total Cost Average Total Cost Total Revenue Profits 1 2 3 4 5 6 7 8 9

Explanation / Answer

1.

2.

demand = P=27-3Q

MR= 27-6Q

optimal solution MR=MC, Q* = 4

3. price =15

Quantity of Output Price Total Cost Average Total Cost Total Revenue Profits MR 1 24 27 27 24 -3 21 2 21 30 15 42 12 15 3 18 33 11 54 21 9 4 15 36 9 60 24 3 5 12 39 7.8 60 21 -3 6 9 42 7 54 12 -9 7 6 45 6.4 42 -3 -15 8 3 48 6 24 -24 -21 9 0 51 5.7 0 -51 -27

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