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:Apps Blackboard Learn Elite Premium Finan... . P City of HollywoodFree Plagiarism Det... Chrom MINDTAP From Cengage Additional Problems & Applications (Ch 16) Consider a monopolistically competitive market with N firms. Each firm's business opportunities are described by the following equations: Demand: Q= -P Marginal Revenue: MR -2Q Total Cost- TC=50 + Marginal Cost: MC = 2Q 0 As N rises, the demand for each firm's product- falls How many units does each firm produce? rises O 25N O 25 25 30

Explanation / Answer

1. As N rises, the demand for each firm’s product falls.

2.The firm will produce where MR= MC:

100/N– 2Q= 2Q = 25/N

So correct ans is D) 25/N

3. To find price, we put this Q = 25/N in the demand equation of the firms.

Q = 100/N - P

25/N = 100/N– P

P= 75/N

So correct option is d) 75/N

4. Profit = Total revenue - Total cost

Total revenue = P×Q = 75/N * 25/N = 1875/N2

Total cost = 50 + Q2 = 50 + (25/N)2 = 50 + 625/N2

Profit = 1875/N2 – 625/N2 – 50 = 1250/N2 – 50

So correct option is b)

5. In the long run profit will be zero,

So put profit = 0

1250 / N2 - 50 = 0

1250 / N2 = 50

N = 5

So in the long run, 5 firms will be exist in the market.

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