4) The following table shows a irm\'s total cost of producing different quanties

Question

4) The following table shows a irm's total cost of producing different quanties of output and the price that consumers are willing to pay for these quantities of the good. eo Co pc ec Po Quantity Price Total Cost $0 $70 $65 $60 $52 0 100 200 300 400 $500 $8,000 $15,000 $20,000 $26,000 a) If the firm is monopolistically competitive, what is the equilibrium output for marginal revenue and marginal cost first) b) What is the equilibrium price charged by the firm? c) Calculate the profit earned or the loss incurred by the firm in the short run. the firm? (hint: fin

Explanation / Answer

Answer

a)
The firm maximizes profit at MR=MC
TR=P*Q
MR of n th output=(TR of n output -total revenue of p output)/(n-p)
n>p
MC of n th output =(TC of n output -total cost of n-1 output)/(n-p)
Profit=TR-TC
The firm shut down in short run because the firm has losses more if the firm produces
Q=0
b)
P=$0
at quantity 0 price is $0

c)
the loss is equal to fixed cost and it is $500

Q P TC TR MC MR Profit 0 0 500 0 -500 100 70 8000 7000 75 70 -1000 200 65 15000 13000 70 60 -2000 300 60 20000 18000 50 50 -2000 400 52 26000 20800 60 28 -5200

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