The demand equation for a good produced by a monopolistically competitive firm is P = 10 - Q. At what price is the firm's total revenue maximized?
A) $9
B) $7
C) $5
D) $3

Question

Quizplus · Accepted Answer

Total revenue (TR) is maximized where marginal revenue (MR) equals zero. The total revenue is P*Q = (10-Q)*Q. Differentiating TR with respect to Q gives MR = 10 - 2Q. Setting MR = 0 gives Q = 5. Substituting Q = 5 into the demand equation gives P = 10 - 5 = $5.

The Demand Equation for a Good Produced by a Monopolistically