A monopolistically competitive firm faces the following demand curve for its product: The firm has total fixed costs of $100 and a constant marginal cost of $25 per unit. The firm will maximize profit with the production of

Question

A monopolistically competitive firm faces the following demand curve for its product:  The firm has total fixed costs of $100 and a constant marginal cost of $25 per unit. The firm will maximize profit with the production of

Quizplus · Accepted Answer

To maximize profit, the firm should produce where marginal revenue (MR) equals marginal cost (MC). In this case, the MR curve is the same as the demand curve.

The MR curve intersects the MC curve at a quantity of 16 units.

To verify that this is the profit-maximizing quantity, we can check the total cost and total revenue at this output level:

Total cost = $100 + ($25 x 16) = $500
Total revenue = price x quantity = $168 x 16 = $2,688

Total profit = total revenue - total cost = $2,688 - $500 = $2,188

This is the highest profit level among the given output choices.

A Monopolistically Competitive Firm Faces the Following Demand Curve for Its