Question

A Monopolistic Competitor Maximizes Profit By Producing 175 Units At A Marginal Cost Of $4. The Average Cost To Produce Is $8 Per Unit And The Firm Can Sell Its Output At A Price Of $12. a) What Is The Profit Per Unit That This Firm Earns? b) What Is The Markup For This Firm? c) What is the total profit this firm earns ?

Answer 1

a) To calculate the profit per unit, we need to subtract the average cost from the price:

Profit per unit = Price - Average cost

Profit per unit = $12 - $8

Profit per unit = $4

b) The markup is the percentage of the price that exceeds the cost:

Markup percentage = (Price - Average cost) / Average cost * 100%

Markup percentage = ($12 - $8) / $8 * 100%

Markup percentage = 50%

c) The total profit earned by the firm can be calculated as the profit per unit multiplied by the quantity produced, minus the total cost:

Total profit = (Price - Average cost) x Quantity - Total cost

Total profit = ($12 - $8) x 175 - ($4 x 175)

Total profit = $4 x 175 - $700

Total profit = $700

Therefore, the total profit earned by the firm is $700.