Use the following to answer question(s): The Restaurant Model

-(Exhibit: The Restaurant Market) The exhibit shows curves facing a typical restaurant in a community.Assume that the market is characterized by many firms, differentiated products, easy entry and easy exit.For the restaurant shown here the profit-maximizing price is:
A) P₁.
B) P₂.
C) P₃.
D) There is not enough information given to answer the question.

Question

Use the following to answer question(s): The Restaurant Model
 
-(Exhibit: The Restaurant Market) The exhibit shows curves facing a typical restaurant in a community.Assume that the market is characterized by many firms, differentiated products, easy entry and easy exit.For the restaurant shown here the profit-maximizing price is:
A) P₁. 
B) P₂. 
C) P₃. 
D) There is not enough information given to answer the question.

Quizplus · Accepted Answer

In a market with many firms, differentiated products, easy entry and exit, the restaurant will face a downward-sloping demand curve. To maximize profit, the restaurant will set its price where marginal revenue equals marginal cost, which occurs at output level Q₂ and corresponding price P₂. Therefore, the profit-maximizing price is P₂.

Use the Following to Answer Question(s): the Restaurant Model