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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 Preview

    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 Summary

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