Firm has the following demand and cost schedule for a particular product:
a) At what price should this firm sell ist product?
b) If this is a monopolistically competiive market, what do you thingk will start happening in th elong rung? Explain
c) Suppose in the long-run, the demand shiffted to Q=100-5P. What should the firm do? Explan.
For profit maximization, set the prices where MC=MR
Demand equation Q=200-5P
Write the equation for P, we get P=(200-Q)/5=40-0.2Q
Total revenue TR = P*Q=(40-0.2Q)*Q
Marginal Revenue MR=dTR/dQ = 40-2*0.2Q=40-0.4Q
Equating MC to MR, we get 40-0.4Q=4
Substituting the value of Q, we get ...
Shows how a firm can maximize its profits for a given demand and cost schedule for a monopolistically competitive market.