Table 16-5
This table shows the demand schedule, marginal cost, and average
total cost for a monopolistically competitive firm.
Quantity |
Price |
Marginal |
Average |
0 |
$30 |
-- |
-- |
1 |
$24 |
$2 |
$32 |
2 |
$18 |
$4 |
$18 |
3 |
$12 |
$6 |
$14 |
4 |
$6 |
$8 |
$10 |
5 |
$0 |
$10 |
$10 |
Refer to Table 16-5. How much profit will this
firm earn at the monopolistically competitive price?
A) $0
B) $5
C) $12
D) $16
Option A
$0
------------
total revenue =P*Q
TR(0)=0*30=0, TR(1)=1*24=24, TR(2)=2*18=36 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)=(24-0)/(1-0)=24, MR(2)=(36-24)/(2-1)=12 and so on
Quantity | Price | Marginal | Average | ||
Cost | Total Cost | TR | MR | ||
0 | 30 | -- | -- | 0 | |
1 | 24 | $2 | 32 | 24 | 24 |
2 | 18 | $4 | 18 | 36 | 12 |
3 | 12 | $6 | 14 | 36 | 0 |
4 | 6 | $8 | 10 | 24 | -12 |
5 | 0 | $10 | 10 | 0 | -24 |
The firm produces at MR=MC or the nearest lower MC
MR=12 and MC=4 where Q=2 units and P=18, ATC=18
Profit=(P-ATC)*Q=(18-18)*2=0
the profit is zero.
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