You are the manager of a firm that sells its product in a monopolistically competitive market with (inverse)demand given by P = 50 − 0.5Q.Your firm's cost function is C = 40 + 5Q².Your firm's marginal revenue is: A) P = 50 − 0.5Q. B) P = 50 − Q. C) P = 100 − Q. D) There is insufficient information to determine the firm's marginal revenue.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, the demand curve facing the firm is downward sloping and its marginal revenue (MR) curve lies below the demand curve.

The given demand function is P = 50 − 0.5Q, which can be rewritten in the inverse form as Q = 100 − 2P.

To find the marginal revenue function, we take the derivative of total revenue (TR) with respect to quantity (Q):

TR = P(Q) × Q = (50 − 0.5Q)Q = 50Q − 0.5Q^2

MR = dTR/dQ = 50 − Q

Thus, the firm's marginal revenue function is B) P = 50 − Q, which shows that the price charged by the firm decreases as it produces more output due to diminishing marginal revenue.

You Are the Manager of a Firm That Sells Its