Table 9-5
Table 9-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 9-5.What are the firm's profit-maximising or loss-minimising price and quantity?

Question

Table 9-5
  Table 9-5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 9-5.What are the firm's profit-maximising or loss-minimising price and quantity?

Quizplus · Accepted Answer

To find the profit-maximizing quantity, we need to find the quantity where marginal revenue equals marginal cost. At a price of $12, the monopolistically competitive producer can sell 4 units, which means the total revenue is 4 x $12 = $48. 
At this quantity, the marginal cost is $13. Therefore, by selling 4 units at a price of $12, the producer incurs a loss of $4. 
Any lower price will lead to an even larger loss, so the best option is to produce and sell 4 units at a price of $12, which will minimize the loss.

Table 9-5 Table 9-5 Shows the Demand and Cost Data