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Total Variable Costs (TVC) of a software producer

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A software producer has fixed costs of $30,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:

Q TVC Price
3,000 $ 5,000 $5
13,000 15,000 4
23,000 28,000 3
33,000 42,000 2
43,000 70,000 1

(a.) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work).

(b.) What should be the production level if fixed costs rose to $50,000 per month? Explain.

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Solution Summary

Determining production levels based on fixed and variable costs.

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The firm will want to maximize its profits (revenue - costs). We can analyze the profit for each level of production by subtracting the TVC from the revenue (PQ):
3,000: ...

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