You are the manager of a monopolistically competitive firm. The inverse demand for your product is...
You are the manager of a monopolistically competitive firm. The
inverse demand for your product is given by P = 200 - 10Q and your
marginal cost is MC = 5 + Q.
a. What is the profit-maximizing level of output?
b. What is the profit-maximizing price?
c. What are the maximum profits?
Homework Answers
P = 200-10Q and MC = 5+Q
a) Profit maximing level of output is where MR=MC
P = 200-10Q
TR = 200Q - 10Q2 ( as TR = P * Q)
MR = 200-20Q
MC = 5+Q
200 -20Q = 5 + Q
195 = 21Q or Q = 9
b) P = 200 -10*9
P = 200 - 90 = 110
so, profit maximizing price is $110.
c) Profits = TR -TC
we have TC = 5Q + 0.5Q2
profits = (110 * 9 ) - ( 5*9 + 0.5*81)
profits= 990 - ( 45 + 40.5)
profits = $904.5
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