Table 13-2
Table 13-2 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 13-2.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 13-2
  Table 13-2 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 13-2.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 quantity and price, we need to look at the marginal revenue and marginal cost. At a quantity of 4, the marginal revenue equals the marginal cost at a price of $12. At this point, the firm is making zero economic profit. Any quantity higher or lower than 4 will result in losses. Therefore, the best choice is B with a price of $12 and a quantity of 4.

Table 13-2 Table 13-2 Shows the Demand and Cost Data