Question

abc audio company is in a monopolistically competitive market selling headphones. in order to determine the quantity and price at which profit will be maximized, data was collected and used to produce the curves shown in the figure below. what is the profit-maximizing price?

Answer 1

The profit-maximizing price for ABC Audio Company's headphones is $800, as shown in Figure 9.6. This price is obtained by determining the point where marginal revenue equals marginal cost, then moving up to the demand curve. The total profit from 5 units at this price is $2350.

Step-by-step explanation:

ABC Audio Company, being in a monopolistically competitive market, determines the profit-maximizing price by undergoing a three-step process similar to that of a monopolist. In Figure 9.6, this process is depicted where the company first identifies the profit-maximizing level of output where marginal revenue (MR) equals marginal cost (MC), which is at a quantity of 5 units. Moving on to Step 2, they decide on the price by drawing a line from this quantity to the demand curve.

For the profit-maximizing price, the firm charges what the market is willing to pay. Figure 9.6 shows that the price is $800, derived from the intersection point on the demand curve. Step 3 involves calculating total revenue, total costs, and profit. The total revenue generated is 5 units times the price of $800, totalling $4000. Comparatively, the total cost is 5 units times the average cost of $330, which amounts to $1650. Subtracting total costs from total revenues, the firm realizes a profit of $2350, depicted by the darkly shaded box.

Answer 2

Where the above graph is given, the price at which profit will be maximized is at $8 dollars.

This is because in a monopolistically competitive market, the profit is maximized at the point where Marginal Revenue (MR) is equal to Marginal Cost.

Monopolistic competition is a form of imperfect competition in which several manufacturers compete with one another, but their products are unique and hence cannot be perfectly substituted.

The monopoly will choose to produce at the quantity where marginal revenue equals marginal cost, or MR = MC, in order to maximize profits.

When a monopoly produces less, MR > MC at certain production levels, allowing the business to increase profits through output expansion.

Full Question:

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abc audio company is in a monopolistically competitive market selling headphones. in order to determine the quantity and price at which profit will be maximized, data was collected and used to produce the curves shown in the figure below. what is the profit-maximizing price?