Question

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

Answer 1

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.