A firm has discovered a new kind of nonfattening, non-habit-forming dessert called zwiffle.It doesn't taste very good, but some people like it and it can be produced from old newspapers at zero marginal cost.Before any zwiffle could be produced, the firm would have to spend a fixed cost of $F.Demand for zwiffle is given by the equation q =12 - p.The firm has a patent on zwiffle, so it can have a monopoly in this market.
A)The firm will produce zwiffle only if F is less than or equal to 36.
B)The firm will not produce zwiffle if F 12.
C)The firm will produce 12 units of zwiffle.
D)The firm will produce 9 units of zwiffle.
E)None of the above.

Question

A firm has discovered a new kind of nonfattening, non-habit-forming dessert called zwiffle.It doesn't taste very good, but some people like it and it can be produced from old newspapers at zero marginal cost.Before any zwiffle could be produced, the firm would have to spend a fixed cost of $F.Demand for zwiffle is given by the equation q =12 - p.The firm has a patent on zwiffle, so it can have a monopoly in this market.
A)The firm will produce zwiffle only if F is less than or equal to 36.
B)The firm will not produce zwiffle if F > 12.
C)The firm will produce 12 units of zwiffle.
D)The firm will produce 9 units of zwiffle.
E)None of the above.

Quizplus · Accepted Answer

The firm will produce zwiffle only if F is less than or equal to 36.Explanation:The firm's profit is given by:π = p * q - FSubstituting the demand equation, we get:π = (12 - q) * q - Fπ = 12q - q^2 - FTo maximize profit, the firm sets the derivative of profit with respect to quantity equal to zero:dπ/dq = 12 - 2q = 0q = 6Substituting q = 6 into the demand equation, we get:p = 12 - q = 12 - 6 = 6Therefore, the firm will produce 6 units of zwiffle and sell them for $6 each. The firm's profit will be:π = p * q - F = 6 * 6 - F = 36 - FThe firm will only produce zwiffle if its profit is positive, which means that F must be less than or equal to 36.

A Firm Has Discovered a New Kind of Nonfattening, Non-Habit-Forming