Frank is an ice-cream maker in a monopolistic competitive market.He has developed a recipe by using low fat yogurt.Suppose that the marginal cost of producing one scoop of this special ice cream is $0.40 and there is no fixed cost.The demand for Frank's special ice cream per hour is given by the table below.
a. How many scoops of ice cream should Frank produce in the short run to maximize profits? What price should he charge?
b. Calculate his economic profits in the short run.
c. Lucy also has a special recipe to make low-fat ice cream. Supposing her cost of making a scoop of ice
cream is the same as Frank’s, should she enter the market?
d. If Lucy enters the market, the demand for Frank’s ice cream will decrease by 2 at each price. Find Frank’s new profit-maximizing quantity, price, and profits.

Question

Frank is an ice-cream maker in a monopolistic competitive market.He has developed a recipe by using low fat yogurt.Suppose that the marginal cost of producing one scoop of this special ice cream is $0.40 and there is no fixed cost.The demand for Frank's special ice cream per hour is given by the table below.  
a.  How many scoops of ice cream should Frank produce in the short run to maximize profits? What price should he charge?
b.  Calculate his economic profits in the short run.
c.  Lucy also has a special recipe to make low-fat ice cream. Supposing her cost of making a scoop of ice
cream is the same as Frank’s, should she enter the market?
d.  If Lucy enters the market, the demand for Frank’s ice cream will decrease by 2 at each price. Find Frank’s new profit-maximizing quantity, price, and profits.

Quizplus · Accepted Answer

The Answer of Frank is an ice-cream maker in a monopolistic competitive market.He has developed a recipe by using low fat yogurt.Suppose that the marginal cost of producing one scoop of this special ice cream is $0.40 and there is no fixed cost.The demand for Frank's special ice cream per hour is given by the table below.  
a.  How many scoops of ice cream should Frank produce in the short run to maximize profits? What price should he charge?
b.  Calculate his economic profits in the short run.
c.  Lucy also has a special recipe to make low-fat ice cream. Supposing her cost of making a scoop of ice
cream is the same as Frank’s, should she enter the market?
d.  If Lucy enters the market, the demand for Frank’s ice cream will decrease by 2 at each price. Find Frank’s new profit-maximizing quantity, price, and profits.

Frank Is an Ice-Cream Maker in a Monopolistic Competitive Market