Monopolistic Competition: Analyzing the Cost Function
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You are the manager of a monopolistically competitive firm. The present demand curve you face is P=100-4Q. Your cost function is C(Q)=50+8.5Q2 (That's Q squared).
a. What level of output should you choose to maximize profits?
b. What price should you charge?
c. What will happen in your market in the long run? Explain.
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Solution Summary
In about 140 words, this solution provides a clear, step by step analysis on how to use the demand curve and cost function to measure the status of a monopolistically competitive firm. All calculations are provided.
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a. What level of output should you choose to maximize profits?
Total Revenue = Price x Quantity
TR = (100 - 4Q) * Q
Cost = 50 +8.5Q^2
Profit = TR - Cost
Profit = 100Q ...
Education
- BE, Bangalore University, India
- MS, University of Wisconsin-Madison
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