A textbook publisher is in monopolistic competition. The firm can sell no books at $100 a book, but for each $10 cut in price, the quantity of books it can sell increases by 20 books a day. The firm's average variable cost and marginal cost is a constant $20 per book. What is the firm's markup?

Question

Quizplus · Accepted Answer

The firm's markup is the difference between the price and the marginal cost. The firm can sell books at $60 (since $100 - 4*$10 = $60 for 80 books) and the marginal cost is $20, so the markup is $60 - $20 = $40.

A Textbook Publisher Is in Monopolistic Competition