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Competitive Pricing

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

If software can only be produced in the quantities above,

a) 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

I create two new colums, revenue (= Q X price) and profit before fixed cost (=revenue - TVC)

Q TVC Price revenue profit before fixed cost
2,000 ...

Solution Summary

Competitive Pricing; Production level in monopolistic competitive market

$2.19