Questions 6 through 10 refer to the scenario that follows. A monopolistically co
ID: 1218486 • Letter: Q
Question
Questions 6 through 10 refer to the scenario that follows. A monopolistically competitive firm has the following short-run inverse demand, marginal revenue, and cost schedules for a particular product: P = dollar45 - dollar0.2Q MR = dollar45 - dollar0.4Q TC = dollar500 + dollar5Q MC = dollar5 What quantity would maximize profits for this firm? At what price should this firm sell its product? What would be the amount of the firm's total revenue at the quantity and price identified in the prior two questions? What would be the amount of the firm's profit (positive number) or loss What do you think would happen in this market in the long run? New firms would enter. Some existing firms would leave. Some existing firms would stay but no new firms would enter, rhere is not enough information to make this determination. Questions 11 through 13 refer to the scenario that follows. An amusement park, whose customer set is made up of .two markets, adult and children has developed demand schedules as follows. Price(dollar) Quantity, Adults Qunatity, Children 5 15 20 6 14 18 7 13 16 8 12 14 9 11 12Explanation / Answer
6) PROFIT WILL BE MAXIMUM AT THE POINT WHERE MC = MR. IT MEANS
$5 = $45 -0.4Q
0.4Q = $45 - $5
Q = $40 / 0.4 = 100
7) P = $45 - 0.2Q SUBSTITUTING THE VALUE OF Q IN THE EQUATION
P = $45 - 0.2 *100 = 45 - 20 = $25.
8) TOTAL REVENUE WILL BE EQUAL TO QUANTITY * PRICE = 100* 25 = $2500
9) PROFIT WILL BE TOTAL REVENUE LESS TOTAL COST
HERE TOTAL REVENUE IS $2500 AND TOTAL COST = $500 + $5 Q = $500 + $5*100
= $500 + $500 = $1000. +PROFIT = 2500 - 1000 = $1500
10) THERE IS NOT ENOUGH INFORMATION TO MAKE THIS DETERMINATION.
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