Figure: Costs and Demand for a Monopolistic Competitor (Figure: Costs and Demand for a Monopolistic Competitor) The
Profits for the firm are:
A)$320.
B)$480.
C)$160.
D)$420.

Question

Figure: Costs and Demand for a Monopolistic Competitor  (Figure: Costs and Demand for a Monopolistic Competitor) The
Profits for the firm are:
A)$320. 
B)$480. 
C)$160. 
D)$420.

Quizplus · Accepted Answer

The profit-maximizing output for a monopolistic competitor is where marginal revenue equals marginal cost. In this case, that occurs at an output level of 8 units. At that level, the price is $60 and the average total cost is $50, resulting in a profit of $10 per unit. Therefore, total profits at this level of output are $80 ($10 profit per unit x 8 units sold).