Question

ralphy runs is a monopolistic competitor in the athletic wear industry. ralphy runs collected the data presented in the graph below to determine the profit-maximizing price and quantity at which it should sell. what is ralphy runs' profit-maximizing price and quantity?

Answer 1

To find Ralphy Runs' profit-maximizing price and quantity, the firm needs to set the quantity where MR equals MC, then determine the price on its demand curve and calculate the profit by subtracting the total cost from total revenue.

Step-by-step explanation:

In order to find the profit-maximizing price and quantity for Ralphy Runs, a firm characterized as a monopolistic competitor, the following steps should be taken:

1. Determine the profit-maximizing level of output (Q₁) where marginal revenue (MR) equals marginal cost (MC).
2. Find the price (P₁) to charge for output level Q₁ by drawing a line straight up from Q₁ to the demand curve on the graph. This point is where the firm will extract its profit-maximizing price.
3. Identify the profit by calculating total revenue (Q₁ multiplied by P₁) and deducting total cost, which is Q₁ multiplied by the average cost (point S on the average cost curve).

The area of the rectangle formed by Q₁ and P₁ minus the rectangle formed by Q₁ and average cost (P2) represents the firm's profits.

Answer 2

Ralphy Runs' profit-maximizing price and quantity are found by determining the output where MR equals MC (Q1), then charging the price that intersects with the demand curve at that quantity (P1), and finally calculating the profit by subtracting total cost from total revenue.

Step-by-step explanation:

The process for a monopolistic competitor like Ralphy Runs to find the profit-maximizing price and quantity involves several steps. In Step 1, the firm determines the profit-maximizing level of output, Q1, which is where MR (marginal revenue) equals MC (marginal cost). Moving to Step 2, the firm finds the price it should charge for Q1 by drawing a line from Q1 to the demand curve, arriving at price P1. In Step 3, Ralphy Runs calculates its profit by taking the total revenue, which is Q1 times P1, and subtracting the total cost, which is Q1 times the average cost (P2) of producing Q1. The profit is represented by the area of the shaded zone in the provided figure.

To summarize, Ralphy Runs selects the quantity where marginal revenue equals marginal cost, charges a price based on the demand curve for that quantity, and calculates profit using the total revenue and total cost at the chosen quantity and price.