A monopolistically competitive firm faces the following demand schedule for its product:
The firm has total fixed costs of $20 and a constant marginal cost of $2 per unit.The firm will maximize profit with

Question

A monopolistically competitive firm faces the following demand schedule for its product: 
The firm has total fixed costs of $20 and a constant marginal cost of $2 per unit.The firm will maximize profit with

Quizplus · Accepted Answer

To maximize profit, the firm should produce where marginal revenue equals marginal cost. In this case, the marginal revenue is given as $23 - $2Q. Setting this equal to the constant marginal cost of $2, we get:
$23 - $2Q = $2 
Solving for Q, we get: 
Q = 10.5 
Since the firm cannot produce half a unit, it should produce 9 units (rounded down from 10.5). At this level of output, the price is $14 and the total revenue is $126. The total cost is $38 ($20 in fixed costs plus $2*9 in variable costs). Therefore, the profit is $88, which is the highest among the given options.

A Monopolistically Competitive Firm Faces the Following Demand Schedule for Its