Figure 11.6

-Refer to Figure 11.6.What is the monopolistic competitor's profit maximizing output?

Question

Figure 11.6
 
-Refer to Figure 11.6.What is the monopolistic competitor's profit maximizing output?

Quizplus · Accepted Answer

To find the monopolistic competitor's profit maximizing output, we need to look for the point where marginal revenue (MR) is equal to marginal cost (MC), which occurs at the quantity where the red line intersects the blue line in the graph. This point is labeled as Q₂. At this output level, the firm can charge a price of P₂ and earn a profit equal to the distance between the price and average total cost (ATC) at Q₂. The profit can be computed as (P₂ - ATC) x Q₂. Any output level to the left of Q₂ (Q₁) would mean that the firm could increase profits by producing more, as MR > MC. Any output level to the right of Q₂ (Q₃ and Q₄) would mean that the firm could increase profits by reducing output, as MC > MR. Therefore, the profit-maximizing output level is Q₂.

Figure 11.6 -Refer to Figure 11.6.What Is the Monopolistic Competitor's Profit Maximizing