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Kranston Foods is a profit maximizing firm in a monopolistic competition industry. If they produce 100...

Kranston Foods is a profit maximizing firm in a monopolistic competition industry. If they produce 100 units and their marginal revenue is $55 then what is their marginal cost?

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Answer :

A profit maximizing monopolistic competition firm produces at the point where the marginal cost equals the marginal revenue. In other words it profit maximizes at the point where the additional revenue earned from the sale of an unit of the good equals the additional cost incurred to produce it.

Here the firm produces 100 units and their marginal revenue is $55.

Thus applying the profit maximizing condition : Marginal Revenue = Marginal Cost = $55

Answer : Their marginal cost is also $55 (since Marginal Revenue = Marginal Cost)

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