Shower Power, Inc., a firm in monopolistic competition, produces shower radios. The company's economists know that it can sell no radios at $80, and for each $10 cut in price, the quantity of radios it can sell increases by 50 a day. This relationship continues to hold until the price falls to $20. The firm's total fixed cost is $3,000 a day. Its marginal cost is constant at $20 per radio.
a) Draw the demand curve faced by the firm and its marginal revenue curve. Also draw Shower Power's marginal cost and average total cost curves.
b) What quantity of radios should Shower Power produce to maximize its profit? What price should it charge?
c) What is the firm's short-run economic profit or loss?
d) In the long run, what will happen to the demand for Shower Power's radios, the quantity of radios sold, the price charged, and the firm's economic profit?'

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The Answer of Shower Power, Inc., a firm in monopolistic competition, produces shower radios. The company's economists know that it can sell no radios at $80, and for each $10 cut in price, the quantity of radios it can sell increases by 50 a day. This relationship continues to hold until the price falls to $20. The firm's total fixed cost is $3,000 a day. Its marginal cost is constant at $20 per radio.
a) Draw the demand curve faced by the firm and its marginal revenue curve. Also draw Shower Power's marginal cost and average total cost curves.
b) What quantity of radios should Shower Power produce to maximize its profit? What price should it charge?
c) What is the firm's short-run economic profit or loss?
d) In the long run, what will happen to the demand for Shower Power's radios, the quantity of radios sold, the price charged, and the firm's economic profit?'