payoff matrix
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The payoff matrix is assessed.
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1. What you have here is a demand schedule and it is given that the firm in question faces a market structure that is monopolistically competitive. In such a market firms make economic profit in the short run but make zero economic profit in the long run. The marginal cost is given to be $70.
(a) The price in the market can be taken to be the marginal revenue that each unit generates. The firm will produce a quantity that maximizes the profit for the firm. This can be obtained by using the condition MR = MC. In this case it will mean finding a point where the price is equal to the marginal revenue of $70. The quantity corresponding to that price is 5, and hence the firm will produce 5 units.
(b) This is a short-run condition. In the long run other firms will enter the market and the price has to fall to the lowest possible marginal cost. If the firm in question has a marginal cost above that then the firm will have to leave the market.
(c) If the firm is earning above normal profit, or economic profit, then other ...
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