Table 16-7
A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to $10.

-Refer to Table 16-7.If the firm has a constant marginal cost of $5 per unit,how much profit will the firm earn at the profit-maximizing level of output?

Question

Table 16-7
A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to $10.
 
-Refer to Table 16-7.If the firm has a constant marginal cost of $5 per unit,how much profit will the firm earn at the profit-maximizing level of output?

Quizplus · Accepted Answer

The profit-maximizing output level occurs where marginal revenue (MR) equals marginal cost (MC). In this case, with a constant marginal cost of $5 per unit, the firm will produce where MC=MR=$18-$2Q. Setting MR=MC and solving for Q, we get:
$18 - $2Q = $5 
Q = 6.5
Since the firm cannot produce a fraction of a unit, it will round down to 6 units. At this level of output, the price will be $12 per unit (found from the demand schedule). The total revenue will be $72 and the total cost will be $40 (consisting of $10 fixed costs and $30 variable cost from producing 6 units at $5 per unit). Therefore, the profit will be $32 ($72 revenue - $40 cost), and after subtracting the $10 fixed costs, the firm will earn a profit of $22.

Table 16-7 a Monopolistically Competitive Firm Faces the Following Demand Schedule for Schedule