(Scenario: Monopolistically Competitive Firm) Use Scenario: Monopolistically Competitive Firm.Given the information in the scenario,in the short run,this firm: Scenario: Monopolistically Competitive Firm
For a monopolistically competitive firm,the demand curve is given by Q = 160 - P,and the firm's cost functions are: MC = 20 + 2Q and TC = 20Q + Q²+ 20.

A) earns profits of $2,430.
B) incurs losses of $2,450.
C) earns no profit.
D) incurs losses of $20.

Question

Yuvraj Singh · Accepted Answer

Final Answer : A, Explanation :  To find the profit, we first determine the quantity (Q) where marginal cost (MC) equals marginal revenue (MR). The demand curve is Q = 160 - P, which can be rearranged to P = 160 - Q to find the price. The marginal cost (MC) is given as 20 + 2Q. To find MR, we need to derive it from the demand curve. Since the demand curve is linear, MR will have the same intercept but twice the slope, so MR = 160 - 2Q. Setting MC equal to MR to find the equilibrium quantity: 20 + 2Q = 160 - 2Q, solving this gives Q = 35. Substituting Q back into the demand equation to find P: P = 160 - 35 = 125. To find total revenue (TR), we use TR = P*Q = 125*35 = $4,375. Total cost (TC) is given by the cost function TC = 20Q + Q^2 + 20, substituting Q = 35 gives TC = 20*35 + 35^2 + 20 = $1,945. Profit is TR - TC = $4,375 - $1,945 = $2,430.

Definitions

Learning Objectives

Learning Objectives

Related questions