Question

A pen producer in a monopolistically competitive market recently changed ink suppliers which caused a decrease in total cost of production. Using the data collected below, which includes the firm's new cost schedule, what should this firm set price and quantity at to maximize profits on pen sales?

Costs of Production for Boxes of Pens
Price Quntity Total Revenue Total Cost Marginal Revenue Marginal Cost
$16 0 $50
$15 50 $750 $700 $15 $13
$14 100 $1,400 $1,350 $13 $12
$13 150 $1,950 $1,850 $11 $11
$12 200 $2,400 $2,350 $9 $10
$11 250 $2,750 $2,800 $7 $9
$10 300 $3,000 $3,200 350 $3 $7

Answer 1

The firm should set price at $13 per pen and quantity at 150 to maximize profits on pen sales.

Step-by-step explanation:

a) Data and Analysis:

Price Quantity Total Total Cost Marginal Marginal

Revenue Revenue Cost

$16 0 $50

$15 50 $750 $700 $15 $13

$14 100 $1,400 $1,350 $13 $12

$13 150 $1,950 $1,850 $11 $11

$12 200 $2,400 $2,350 $9 $10

$11 250 $2,750 $2,800 $7 $9

$10 300 $3,000 $3,200 $3 $7

b) The monopolistic competitor's profit-maximizing price and quantity will be at the point where the marginal revenue equals the marginal cost. In other words, producing 150 pens and selling each for $13, where MC = MR, the producer will maximize its profit.