Question

Answer the question based on the demand and cost schedules for a monopolistically competitive firm given in the table below.

Price Quantity Demanded Total Cost Output
$ 30 1 $ 10 1
27 2 20 2
24 3 29 3
21 4 36 4
15 5 40 5
10 6 42 6


What output quantity will the monopolistically competitive firm produce to maximize profits?

Answer 1

marginal revenue = $21

Monopolistic competition is a market structure where many firms sell differentiated products. The monopolistic competitive firm maximizes profits where marginal revenue is above or equals to marginal cost. Profit is maximum at an output of 4 units. When the output is 4 units, marginal revenue is $21 and marginal cost is $7.