A monopolistically competitive firm has the following demand and cost structure

Question

A monopolistically competitive firm has the following demand and cost structure in the short run

Output Price FC VC TC TR Profit/Loss
0 $90 $90 $ 0 ____ ____ ________
1 80 ____ 40 ____ ____ ________
2 70 ____ 80 ____ ____ ________
3 60 ____ 140 ____ ____ ________
4 50 ____ 220 ____ ____ ________
5 40 ____ 320 ____ ____ ________
6 30 ____ 440 ____ ____ ________
7 20 ____ 580 ____ ____ ________

a. complete the table
b. What level of output maximizes profit or minimizes loss?
c. Should this firm operate or shut down in the short run? Why?

Explanation / Answer

Above table at quantity 0 fixed cost is 90 as nothing is produced so no variable cost now this fixed cost will remain constant over time hence it will be 90 in all the cases. Variable cost is already given in the question and total cost will be FC+VC TR = Price*Output Profit/Loss = TR-TC Firm will shut down if its price goes down below average variable cost. In each of the cases the price

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