Pizza Plus operates in a monopolistically competitive industry and faces an inverse demand curve of P = 30 - 2Q, where Q is measured in hundreds of pizzas per week and P is the price per pizza. The marginal cost per pizza is $6. What price should Pizza Plus charge per pizza to maximize profit?

Question

Quizplus · Accepted Answer

To maximize profit, a firm sets marginal revenue (MR) equal to marginal cost (MC). The inverse demand curve is P = 30 - 2Q. To find MR, we differentiate the total revenue (TR = P*Q = (30 - 2Q)Q) with respect to Q, which gives MR = 30 - 4Q. Setting MR equal to MC (which is $6) and solving for Q gives: 30 - 4Q = 6, so 4Q = 24, and Q = 6 (hundreds of pizzas). Substituting Q = 6 back into the demand curve to find P: P = 30 - 2*6 = 30 - 12 = $18.

Pizza Plus Operates in a Monopolistically Competitive Industry and Faces