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.) What is the corresponding profit-maximizing price? $ per latte. (Enter a numeric response using a real number rounded to two decimal places.) Calculate the coffeehouse's profits on caffe lattes. $. (Enter a numeric response using a real number rounded to two decimal places.)

Explanation / Answer

As the profit maximising condition of monopolistic firm is at MR = MC.Here, it is the point where MR cuts MC where 24 units of caffe latte is produce at $1.50

1) Profit maximising quantity is 24 units

2) Profit maximising price is 1.50 $

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