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Profit maximization with given demand and cost schedule

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Firm has the following demand and cost schedule for a particular product:
Q=200-5p

TC=400+4Q

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.

MR
MC
TR
TC
Profit ...

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Solution Summary

Shows how a firm can maximize its profits for a given demand and cost schedule for a monopolistically competitive market.

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a)
For profit maximization, set the prices where MC=MR
Now:
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

TC=400+4Q
MC=dTC/dQ=4
Equating MC to MR, we get 40-0.4Q=4
0.4Q=36
Q=90
Substituting the value of Q, we get ...

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