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Selecting optimal output level

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Please refer problem 3 from the attached file for graph.

The accompanying graph (bottom of this page) summarizes the demand and costs for a firm that operates in a monopolistically competitive market.

a. What is firm's optimal output?
b. What is firm's optimal price?
c. What are the firm's maximum profits?
d. What adjustments should the manager be anticipating?

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Solution Summary

The solution describes the steps to determine optimal output, price and associated profits of a monopolostically competitive firm.

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a.What is firm's optimal output?
A monopolistically competitive firm will choose the output level where MR=MC to maximize profits.
MR and MC curves intersect each other at point where Q=7. So, optimal output level is 7 units. ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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