A t-shirt store in a monopolistically competitive market faces a demand curve for t-shirts given by...
A t-shirt store in a monopolistically competitive market faces a demand curve for t-shirts given by P = 25 – 0.5Q (and so a marginal revenue of MR = 25 – Q). The variable costs of producing a t-shirt are VC = 3Q and so the marginal costs are constant at $3. If the t-shirt store is in a long-run equilibrium, what must its fixed costs be?
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$308 |
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$242 |
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$66 |
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$418 |
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$14 |
Homework Answers
$242 ----- is correct
Profit is maximized at MR = MC
25 - Q = 3
Q= 22
P= 25 - 0.5*22= 14
Profit is 0 in long run equilibrium
Profit = PQ - VC - FC
0 = 14*22 - 3*22 - FC
FC = 242
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