Scenario: Monopolistically Competitive Firm A monopolistically competitive firm's demand for its product is equal to Q = 160 - P, and its MC curve is equal to MC = 20 + 2Q.Its TC curve is as follows: TC = 20Q + Q₂ + 20.
(Scenario: Monopolistically Competitive Firm) Given the information in the scenario Monopolistically Competitive Firm, what is the fixed cost for this firm?
A)There is none, since this is the long run.
B)Fixed costs equal $160.
C)Fixed costs equal $20.
D)Fixed costs equal $180.

Question

Quizplus · Accepted Answer

Fixed costs can be calculated by finding the total cost when output is zero. TC = 20(0) + Q₂ + 20 = Q₂ + 20. Since there is no information given about Q₂, we can assume that it is zero in the short run. Therefore, fixed costs equal $20. Option A is incorrect because the scenario does not specify that it is the long run. Option B is incorrect because fixed costs cannot be equal to the demand for the product. Option D is incorrect because it does not accurately calculate fixed costs.

Scenario: Monopolistically Competitive Firm a Monopolistically Competitive Firm's Demand for Its