As a manager of a factory producing widgets in a monopolisticaly competitive mar

Question

As a manager of a factory producing widgets in a monopolisticaly competitive market, you decide to produce 630 units and charge $68 per unit sold. Given the cost and revenue curves shown below, would your factory be profitable? Why or why not? Price and cost per unit ATC MC $75 68 54 38 Demand 630 800 Quantity 880 850 MR ONo, the factory would not be profitable because the average total cost is higher than the profit maximizing/loss minimizing price per unit O No, the factory would not be profitable because the marginal cost per unit is higher than the marginal revenue per unit at the profit maximizingloss minimizing quantity O Yes, the factory would be profitable because the demand is greater than the marginal revenue. Yes, the factory would be proftable because the marginal revenue per unit is greater than the marginal cost per unit O Yes, the factory would be profitable because the marginal revenue per unit is greater than the average total cost.

Explanation / Answer

Answer

Option 1

The profit=(P-ATC)*Q
=(68-75)*630
=-4410
The firm earn profit of $-4410
the firm is minimizing losses but it is not profitable

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