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payoff matrix

Help - I have 2 questions I am struggling with - Please see attached.


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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 ...

Solution Summary

The payoff matrix is assessed.