- Questions 6 through 10 refer to the scenario that follows. 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
What quantity would maximize profits for this firm? (Hint: Recall that profit maximizing is where MR = MC)
- At what price should this firm sell its product?
- What would be the amount of the firm’s total revenue at the quantity and price identified in the prior two questions?
- 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?
- What do you think would happen in this market in the long run?
New firms would enter.
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.