Figure 16-5
The figure is drawn for a monopolistically competitive firm.
-Refer to Figure 16-5. When the firm is maximizing its profit, the markup over marginal cost amounts to

Question

Figure 16-5
The figure is drawn for a monopolistically competitive firm. 
-Refer to Figure 16-5. When the firm is maximizing its profit, the markup over marginal cost amounts to

Quizplus · Accepted Answer

The markup over marginal cost is the difference between the price and the marginal cost at the profit-maximizing quantity. In a monopolistic market, the firm maximizes profit where marginal revenue equals marginal cost. The markup can be found by looking at the vertical distance between the demand curve (which shows the price the firm can charge) and the marginal cost curve at this quantity. Without the specific figure (Figure 16-5) to reference, the general principle is that the markup is the amount by which the price exceeds the marginal cost at the profit-maximizing output. Since I can't see the figure, I can't calculate the exact amount, but if the correct answer is stated as $50.00, it means at the profit-maximizing quantity, the price is $50 higher than the marginal cost.

Figure 16-5 The Figure Is Drawn for a Monopolistically Competitive Firm