Question

Suppose Cooper's is a monopolist that manufactures and sells Stompers, an extremely trendy shoe brand with no close substitutes. The following graph shows the market demand and marginal revenue (MR) curves Clomper's faces, as well as its marginal cost (MC), which is constant at $20 per pair of Stompers. For simplicity, assume that fixed costs are equal to zero; this, combined with the fact that Clomper's marginal cost is constant, means that its marginal cost curve is also equal to

Answer 1

In monopolistic competition, the monopolist chooses the quantity where marginal revenue equals marginal cost, while the price is determined by the demand curve.

Step-by-step explanation:

In a monopolistic competition, the monopolist faces a downward-sloping demand curve and the marginal revenue curve lies below the demand curve. The intersection of the marginal revenue (MR) and marginal cost (MC) curves determines the monopolist's profit-maximizing quantity and price. The monopolist will choose the quantity where MR equals MC, and then set the price based on the demand curve.

In the given graph, the marginal cost (MC) is constant at $20, so the MC curve is a horizontal line. The monopolist should choose the quantity where the marginal revenue (MR) equals $20. This quantity can be found by drawing a horizontal line from the MR curve to intersect with the MC curve.

The monopolist will then set the price based on the demand curve. The price associated with the chosen quantity on the demand curve represents the monopolist's profit-maximizing price.