Table 13-2

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.
-Refer to Table 13-2.What is the output (Q)that maximizes profit and what is the price (P)charged?
A)P = $55; Q = 5 cases
B)P = $50; Q = 6 cases
C)P = $45; Q = 7 cases
D)P = $40; Q = 8 cases

Question

Table 13-2
  
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.
-Refer to Table 13-2.What is the output (Q)that maximizes profit and what is the price (P)charged?
A)P = $55; Q = 5 cases 
B)P = $50; Q = 6 cases 
C)P = $45; Q = 7 cases 
D)P = $40; Q = 8 cases

Quizplus · Accepted Answer

To maximize profit, the firm produces where marginal revenue equals marginal cost. At a quantity of 6 cases, the marginal revenue is equal to $50 (the price) and the marginal cost is also $50. This results in a profit of $150, which is the highest profit possible compared to other output levels. Therefore, the best choice is B with a price of $50 and a quantity of 6 cases.

Table 13-2 Eco Energy Is a Monopolistically Competitive Producer of a Sports