Table 13-5

Table 13-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 13-5.What are the firm's profit-maximizing or loss-minimizing price and quantity?
A)price = $10; quantity = 5.
B)price = $12; quantity = 4.
C)The firm should shut down temporarily.
D)This cannot be determined from the information given.

Question

Table 13-5
  
Table 13-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 13-5.What are the firm's profit-maximizing or loss-minimizing price and quantity?
A)price = $10; quantity = 5. 
B)price = $12; quantity = 4. 
C)The firm should shut down temporarily. 
D)This cannot be determined from the information given.

Quizplus · Accepted Answer

To find the profit-maximizing or loss-minimizing price and quantity, we need to look for the quantity where marginal revenue (MR) equals marginal cost (MC) and then find the corresponding price.

From the table, we can see that when the quantity is 4, the marginal cost is $11 and the marginal revenue is $12. At any quantity lower than 4, the marginal cost is greater than the marginal revenue, so the firm would incur losses. At any quantity higher than 4, the marginal cost is lower than the marginal revenue, so the firm could increase its profits by producing more.

So, the profit-maximizing or loss-minimizing quantity is 4. At this quantity, the price is $12 (the corresponding value in the "Price" column). Therefore, the firm's profit-maximizing or loss-minimizing price and quantity are B) price = $12 and quantity = 4.

Table 13-5 Table 13-5 Shows the Demand and Cost Data Facing a and Cost