Demand and Cost Data for Will's Beach Ball Company Table 26.1
A Monopolistically Competitive Firm
$\begin{array}{|r|r|r|r|r|}
\hline&\text { Demand Data }&&\
\text { Price } & \text { Quantity } & \text { Cost Data Output } & \text { Total Cost } \
\hline \$ 11 & 6 & 6 & \$ 48 \
\hline \$ 10 & 7 & 7 & \$ 52 \
\hline\$9&8&8&\$57\
\hline \$ 8 & 9 & 9 & \$63 \
\hline \$7 & 10& 10&\$70 \
\hline
\end{array}$
Refer to Table 26.1.At the profit-maximizing output and price,Will's Beach Ball Company will earn a ________ economic profit,and ________ the market will occur.
A)negative;exit from
B)negative;entry into
C)positive;exit from
D)positive;entry into

Question

Demand and Cost Data for Will's Beach Ball Company Table 26.1
A Monopolistically Competitive Firm
$\begin{array}{|r|r|r|r|r|}
\hline&\text { Demand Data }&&\
\text { Price } & \text { Quantity } & \text { Cost Data Output } & \text { Total Cost } \
\hline \$ 11 & 6 & 6 & \$ 48 \
\hline \$ 10 & 7 & 7 & \$ 52 \
\hline\$9&8&8&\$57\
\hline \$ 8 & 9 & 9 & \$63 \
\hline  \$7 & 10& 10&\$70 \
\hline
\end{array}$
 Refer to Table 26.1.At the profit-maximizing output and price,Will's Beach Ball Company will earn a ________ economic profit,and ________ the market will occur.
A)negative;exit from
B)negative;entry into
C)positive;exit from
D)positive;entry into

Quizplus · Accepted Answer

To determine the profit-maximizing output, we need to find where marginal revenue (MR) equals marginal cost (MC). The change in total cost as output increases gives us MC. From 6 to 7 balls, the total cost increases from $48 to $52, so MC = $4. The price decreases from $11 to $10 to sell one more unit, so MR = $10 - $11 = -$1, which doesn't match our MC calculation due to a misunderstanding in MR calculation. Correctly, MR should be calculated based on the revenue change, not just the price change. However, without explicit MR data, we typically look for where additional units' revenue (price) would approximately cover the additional costs (MC), suggesting the firm is maximizing profit where additional revenue from selling an extra unit equals the extra cost of producing that unit.Given the table doesn't directly provide MR, and my explanation mistakenly attempted to derive it incorrectly from price change, let's correct the approach: Profit maximization occurs where the firm's marginal cost is just covered by the price at which the product is sold, indicating the firm is no longer increasing its profit by producing additional units. The table doesn't directly show profits, but economic profit considers total revenue minus total costs, including opportunity costs.Without explicit profit calculations here, we generally infer that in a monopolistically competitive market, firms can earn positive economic profits in the short run, leading to entry into the market. Over time, the entry of new firms erodes these profits, pushing them towards zero in the long run, but the question seems to focus on the short-run scenario following the firm's profit-maximizing decision.Thus, the correct inference, despite the confusion in the explanation, would be that the firm could be earning a positive economic profit, leading to entry into the market, as firms are attracted by the opportunity to earn profits themselves. This aligns with choice D) positive; entry into, considering the general behavior of firms in a monopolistically competitive market.