Please only answer if you can show your logic and do not repeat the answers that
ID: 1201191 • Letter: P
Question
Please only answer if you can show your logic and do not repeat the answers that are NOT correct. Those answeres have been submitted and came back as wrong asnwers. Thanks
A monopolistically competitive firm has the following short-run inverse demand, marginal revenue, and cost schedules for a particular product:
P = $45 – $0.2Q
MR = $45 – $0.4Q
TC = $500 + $5Q
MC = $5
The quanitity of 100 would maximize profits for this firm (MR=MC). This is already confimed as a correct answer.
1. At what price should this firm sell its product?
You would think it would be P=45-0.2(100), P=45-20, P=25. This is NOT the correct answer. Im puzzled myself.
2. What would be the amount of the firm’s total revenue at the quantity and price identified in the prior two questions?
You would think $25X100 = 2500. This is NOT the correct answer, obviously the price is wrong.
3. What would be the amount of the firm’s profit (positive number) or loss (negative number) at the quantity and price identified in questions 6 and 7.
2500-1000=1500. This is NOT the correct answer.
4. What do you think would happen in this market in the long run?
New firms would enter -This is NOT the correct answer
Some existing firms would leave.
Some existing firms would stay but no new firms would enter.
There is not enough information to make this determination.
Explanation / Answer
Answer. For monopolistic firms, the profit maximization condition is MR=MC, at that level, the firm sells that number of units that maximizes its profit. To obtain price, we can simply put the quantity sold by the firm in the demand function, and we wll get prices charged by monopolistic firm.
Total Revenue = P*Q
Profit = Total Revenue -Total Cost.
As per the information provided in the question, the method mentioned above is right and would give the answers that are mentioned in the question.