1. Profit maximization of a seller in a monopollstically competitive market Aa A
ID: 1118677 • Letter: 1
Question
1. Profit maximization of a seller in a monopollstically competitive market Aa Aa Consider a store that produces bagels in a monopolistically competitive market. The following graph shows its demand curve (Demand), marginal revenue curve (MR), marginal cost curve ( Assume that the company is operating in the short run. MC), and average cost curve (AC). PRICE (Dollars per bagel) MC $3.50 AC $2.75 | --*-- MRDemand 20 460 560 QUANTITY (Bagels per day The profit-maximizing level of output is bagels per day at a price of each. At the profit-maximizing output and price, the store's profit equals Given the profit-maximizing choice of output and price, the store is making there are profit, which means that stores in the industry relative to the long-run equilibrium.Explanation / Answer
A monopolistic competetive firm maximises profit by the condition:
In the above figure, MR=MC occurs for the quantity Q=320. So the profit maximising level of output is 320.
The profit maximising price for the quantity Q=320 is P=$2.75
At the profit maximising output and price:
Cost= 3.50*320=1120$
Revenue=P*Q=2.75*320=880$
Profit of the firm= Revenue - Cost = 880 - 1120 = - 240$
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