Question

Table 16-4
This table shows the demand schedule, marginal cost, and average total cost for a monopolistically competitive firm.

Quantity	Price	Marginal Cost	Average Total Cost
0	$50	--	--
1	$45	$30	$40
2	$40	$24	$32
3	$35	$14	$26
4	$30	$10	$22
5	$25	$12	$20
6	$20	$32	$22
7	$15	$50	$26
8	$10	$74	$32
9	$5	$104	$40
10	$0	$140	$50

Refer to Table 16-4. What price will this firm charge to maximize profit?

$25

$30

$35

$40

Answer 1

option 2

$30

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Total revenue =P*Q

TR(0)=0*50=0, TR(1)=1*45=45, TR(2)=2*40=80 and so on

MR(n)=(TR(n)-TR(p))/(n-p)
MR(n)= MR of n th unit of output
TR(n)=TR of n units of output
TR(p)=TR of p units of output
it is true for n>p
MR(1)=(45-0)/(1-0)=45, MR(2)=(80-45)/(2-1)=35 and so on

Quantity	Price	Marginal Cost	Average Total Cost	TR	MR
0	50	--	--	0	-
1	45	$30	$40	45	45
2	40	$24	$32	80	35
3	35	$14	$26	105	25
4	30	$10	$22	120	15
5	25	$12	$20	125	5
6	20	$32	$22	120	-5
7	15	$50	$26	105	-15
8	10	$74	$32	80	-25
9	5	$104	$40	45	-35
10	0	$140	$50	0	-45

the firm produces at MR=MC or the nearest lower MC

MR=15 and MC=10 before it crosses.

Q=4 units and P=$30