12:31 PM 8296 ..ooo Boost Back 2 c. Use the graph of a monopolistic competior be

Question

12:31 PM 8296 ..ooo Boost Back 2 c. Use the graph of a monopolistic competior below to answer each of the questions belorw (let E-$20: D=$16;c=$14; B-$10; A-se,L 100units M = 120 units)-.. MC i. At what level will the firm operate? ii. What is the marginal revenue at this level? ii. What price will the firm charge? iv. What is the firms TC ; TVC , TFC = v. The firm is making (losses/profits) vi. Amount of (losses/profits) are vii. If the firm were to shut down, its total revenue would be $ 1otal cost would be $- vii What price would the firin charge under competitive conditions? ix. Wlat is the sizeof this firm's excess capacity?

Explanation / Answer

i. The Firm will Operate at a level where MR=MC, The Point Directly below intersection of MR and MC

Q=100

ii. Marginal Revenue=$8, Point corresponding to the intersection of MR and MC on Y Axis i.e. A

iii. Price=$20, Point lying above the intersection of MR=MC on demand curve i.e. F and corresponding Point E on Y Axis

iv. TC=$14 x 100=$1400, TVC=$10 x 100=$1000, Total Fixed Cost=TC-TVC=$400

v. Profits as ATC and AVC both lie below at that point.

vi. Profits=$20 x 100- $14 x 100=$600

vii. $800 and TC=$1400

viii. $14 will be Charged under competitive market point where MC is cutting Minimum of ATC.

ix. QM-QL=120-100=20

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