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Profit under monopolistic competition

Suppose a firm in monopolistic competition has the following demand schedule. Suppose the marginal cost is a constant $70. How much will the firm produce? Is this a long- or short-run situation? If the firm is earning above-normal profit, what will happen to this demand schedule?

Price Quantity Price Quantity
$100 1 $70 5
$95 2 $55 6
$88 3 $40 7
$80 4 $22 8

Solution Preview

The firm will set its marginal revenue equal to marginal cost, which means that the firm will produce 3 units. At this point its total revenue is $264 and its total costs are $70 * 3 ...

Solution Summary

Given demand schedule, finding the output and profit levels and long-run adjustments to demand schedule.