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# Determining the optimal production level

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A software producer has fixed costs of \$20,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:

Q TVC Price
2,000 \$5,000 \$20
4,000 7,000 15
6,000 18,000 10
8,000 33,000 5
10,000 50,000 1

a) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above?

b) What should be the production level if fixed costs rose to \$70,000 per month?

#### Solution Preview

Please refer attached file for better clarity of tables.

a) If software can only be produced in the quantities above, what should be the production level if the producer operates in a
monopolistic competitive market where the price of software at each possible quantity is also listed above?

Output Total Fixed Cost Total Variable Cost Total Cost Price Total Revenue MC* MR**
Q TFC TVC TC=TFC+TVC P TR=P*Q
0 20000 0 20000 0
2000 20000 5000 25000 ...

#### Solution Summary

Solution determines the optimal production levels in the given cases.

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