Question

A monopolistically competitive firm faces the inverse demand curve P = 100 – Q,and its marginal cost is constant at $20. The firm is in long-run equilibrium.

a.Graph the firm's demand curve, marginal revenue curve, and marginal cost curve. Also, identify the profit-maximizing price and quantity on your graph.

b.What is the value of the firm's fixed costs?

c.What is the equation for the firm's ATC curve?

d.Add the ATC curve to your graph in part a

please actually graph the answer including part d thank u

Answer 1

a.

P = 100 – Q

TR = P*Q = 100Q - Q^2

MR = dTR/dQ = 100 - 2Q

At equilibrium, MR = MC

100 - 2Q = 20

Q* = 40

P* = 100 - 40 = 60

b

SInce, the firm is in long run, we know that all costs are variable in the long run. So, Fixed Cost = 0

c. TC = 20Q

ATC = 20Q / Q = 20

d. ATC = MC = Horizontal Line parallel to X-axis.

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