Question

Suppose that a monopolistically competitive restaurant is currently serving 270 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $13 per meal. In long-run equilibrium, suppose that this restaurant charges $11 per meal for 180 meals and that the marginal cost of the 180th meal is $9. Suppose that the allocatively efficient output level in long-run equilibrium is 220 meals. What is the firm's profit?

Answer 1

In a monopolistic competitive market, a firm maximizes profits by equating marginal revenue and marginal cost. At the profit-maximizing output, the firm charges a specific price and makes economic profits.

Step-by-step explanation:

In a monopolistic competitive market, a firm determines its profit-maximizing level of output by equating marginal revenue (MR) and marginal cost (MC).

In the given example, the firm's profit-maximizing output is determined at the intersection of MR and MC, which is at a quantity of 40.

At this quantity, the firm charges a price of $16 and makes economic profits.

Using the information from Table 10.1, the firm's total revenue is $640 and its total cost is $580, resulting in a profit of $60.