1. Profit maximization of a seller in a monopolistically competitive market Aa A
ID: 1117050 • Letter: 1
Question
1. Profit maximization of a seller in a monopolistically competitive market Aa Aa Consider a store that produces bagels in a monopolistically competitive market. The following graph shows its demand curve (Demand), marginal revenue curve (MR), marginal cost curve (MC), and average total cost curve (ATC). Assume that the company is operating in the short run. PRICE (Dollars per bagel) MC ATC $2.50 $2.10 $1.50- emand MR 600720 810 QUANTITY Bagels per day) The profit-maximizing level of output is bagels per day at a price of each At the profit-maximizing output and price, the store's profit equals Given the profit-maximizing choice of output and price, the store is making there are profit, which means that stores in the industry relative to the long-run equilibrium.Explanation / Answer
The monopoliticaly competitive firm profit-maximising condition are;
MR=MC,
Therefore the quantity will be= 600 units
Corresponding to this quantity on the demand curve, the price will be determined.
Therefore price will be=$2.50
At this price and output profit = TR - TC
=P*Q - Q*ATC
= 2.50* 600 - 600*2.25
=1500-1350
=150
Given the profit maximising price and quantity choice, the firm earns economic profit in the short run. It means more firm enter in the in the short-run. It means there is more bagels store in the industry relative to the long-run equilibrium.
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