Question

Assuming that the monopolistic competitor faces the demand and costs depicted below and finds the profit maximizing level of output, what will be the corresponding price?

Answer 1

A monopolistic competitor finds the profit-maximizing price by determining the quantity where MR equals MC and then looking to its perceived demand curve to find the price for that quantity. For Authentic Chinese Pizza, this process suggests a price of $16 per pizza at a quantity of 40. The price set typically allows the firm to earn profits above average cost.

Step-by-step explanation:

Determining the Price for a Monopolistic Competitor

To determine the appropriate price for its product, a monopolistic competitor will first find the profit-maximizing level of output. This is done by equating marginal revenue (MR) with marginal cost (MC). Once the profit-maximizing quantity is found, the firm uses its perceived demand curve to identify the price it can charge for this quantity of output. By drawing a vertical line from the profit-maximizing quantity to the perceived demand curve, the intersection point reveals the optimal price. For example, if a company named Authentic Chinese Pizza determines its profit-maximizing quantity to be 40 pizzas, it will then look to its perceived demand curve to find the price it can charge, which, according to the hypothetical graph provided, would be $16 per pizza.

The price determined by this method will allow the monopolistic competitor to maximize profits given its cost structure and the demand for its product. It is critical to note that this price is typically above the average cost, indicating that the firm will earn a profit. In a completely competitive market, such profits would be eroded over time due to new entrants, but monopolistic competitors often maintain some profit due to barriers to entry or product differentiation.

Answer 2

In this case, the corresponding price, when the monopolistic competitor produces the profit-maximizing level of output, is approximately $73.33.

Step-by-step explanation:

To find the profit-maximizing level of output and corresponding price for a monopolistic competitor, we need to set the marginal cost (MC) equal to the marginal revenue (MR), and then solve for the level of output (Q).

• Given the demand curve: Price = 100 - 2Q
• And the marginal cost (MC) = 20 + 2Q

To find the marginal revenue (MR), we need to take the derivative of the demand equation with respect to quantity (Q):

MR = d(100 - 2Q)/dQ = 100 - 4Q

Now, we can set MR equal to MC and solve for Q:

100 - 4Q = 20 + 2Q

100 - 20 = 2Q + 4Q

80 = 6Q

Q = 80/6

Q = 40/3

To find the corresponding price, we substitute the value of Q back into the demand equation:

Price = 100 - 2Q

Price = 100 - 2(40/3)

Price = 100 - 80/3

Price = 300/3 - 80/3

Price = 220/3

Price ≈ 73.33

Therefore, the corresponding price, when the monopolistic competitor produces the profit-maximizing level of output, is approximately $73.33.

Your question is incomplete, but most probably the full question was:

Assuming that the monopolistic competitor faces the demand and costs depicted below and finds the profit maximizing level of output, what will be the corresponding price?

Hint:

Demand curve equation: Price = 100 - 2Q

Marginal Cost (MC) = 20 + 2Q