Question

A monopolistic competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to 20.

Price (dollars)	Quantity
30	1
26	2
22	3
19.58	4
14	5
10	6
6	7

If the firm has a constant marginal cost of $7 per unit, what total variable cost will the firm incur at the profit-maximizing level of output?

Answer 1

Price (dollars)	Quantity	TR	MR
30	1	30	30
26	2	52	22
22	3	66	14
19.58	4	78.32	12.32
14	5	70	-8.32
10	6	60	-10
6	7	42	-18

A monopolistic competitive firm will produce output, when MR = MC.

On this basis, the firm will produce 4 units of output, because afterwars MR becomes negative and it is less than MC of $7.

So,

Output produced = 4 units

Total variable cost = 4*7

Total variable cost = $28 ( at profit maximizing level of output)