Question

# Table 16-5 This table shows the demand schedule, marginal cost, and average total cost for a...

Table 16-5
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 \$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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