You are the manager of a monopolistically competitive firm. Your demand function

Question

You are the manager of a monopolistically competitive firm. Your demand function is: p=25-Q, and your cost function is : TC=5Q. Respectively MR=25-2Q and MC=5.
1.) what is MR for Q=8? What is MC for Q=6? 2.) determine the firm price, output and profits. Explain. 3.) what will happen in the market in the long run? Explain You are the manager of a monopolistically competitive firm. Your demand function is: p=25-Q, and your cost function is : TC=5Q. Respectively MR=25-2Q and MC=5.
1.) what is MR for Q=8? What is MC for Q=6? 2.) determine the firm price, output and profits. Explain. 3.) what will happen in the market in the long run? Explain
1.) what is MR for Q=8? What is MC for Q=6? 2.) determine the firm price, output and profits. Explain. 3.) what will happen in the market in the long run? Explain

Explanation / Answer

1.

MR=25-2Q

MR(8)=9

MC(6)=5

2.

Profit maximization MR=MC

25-2Q=5

Q=10, P=25-Q

P=15, profit=PQ-Cost=150-5*10=100

3.

In long run due to positive profit, more firm will enter. As a result competition will increase which will lead to fall in price of products.

In long run price will equal to average cost or MC, and at this point no new firm will enter. Market will be in equilibrium.

25-Q=5

Qc=20, P=5

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