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Microeconomics: Revenue Maximization and Shut Down Decisions for a Video Store

Please see chart attached and respond the following questions:

a. If the owner of this video store wants to maximize profits, how many DVD's should the store rent per day and what price should be charged? explain your answer

b. Should it continue to produce in the short run? Why?

c. How much are fixed costs?

d. How much economic profit (or loss) is the store making? briefly explain what will happen in the long run. Draw in the long run equilibrium.

e. Is the owner likely to continue renting this number of DVD's in the long run? briefly explain

f. Determine the amount (in dollars of dead weight loss) for this monopolistic competitor

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Solution Preview

To maximize profits all firms want to produce at the point where MC= MR. In monopolistic competition, the demand curve is also the marginal revenue curve. For this firm, the, MC= MR occurs at 110 DVDs. Because its price covers its variable costs, the firm should continue to produce.

To answer the other questions, you will need to see the ATC and AVC curves. I have added some where they seemed ...

Solution Summary

Revenue maximization and dead weight loss for monopolistic competition is discussed in 284 words. The graph shows a shift in the long run supply curve.