The graph to the right depicts the demand for caffe lattes at a local coffeehous

Question

The graph to the right depicts the demand for caffe lattes at a local coffeehouse along with the average total cost and marginal cost of producing lattes. Suppose the coffeehouse is in a monopolistically competitive market in the short run. How many caffe lattes should this coffeehouse produce to maximize profits?units. (Enter a numeric response using an integer) MC ATC What is the corresponding profit-maximizing price? $per latte. (Enter a numeric response using a real number rounded to two decimal placos.) 4.80 4.35 3.63 3.00 (Enter a numeric response using a real number Calculate the coffeehouse's profts on caffe lattes. rounded to two decimal places.) MR 24 60 Quantity of caffe lattes (per day)

Explanation / Answer

For monopolistically competitive market in the short run :

Profit maximising condition is where MR=MC:

Now , we can see from the question figure, that MR =MC when coffeehouse produces 24 caffee lattes per day .

At this profit maximising price = $4.80 per latte.

Now, to calculate the coffeehouse's profits on caffee lattes. It is represented by the area of the triangle =

=$(4.80 - 4.35)(24)

= $ (0.45)(24) = $ 10.8

Suppose the U.S government imposes a $0.40 tariff on rice imports. World price is equal to $0.60 represented in the figure. Then , after imposing the tariff price would be $1.00 is also represented in the figure.

Now we can see from the graph that With the tariff in place , the U.S consumes :

31 million pounds of rice of which 15 million pounds is domestically produced and 16 million pounds is imported.  

Therefore, option (C) is correct.

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