Question

Price and cost (dolars per cup) Homework: HW Ch. 13 Score: 0 of 1 pt 1 of 40 (31 complete) HW Score: 72.29 % , 2 Concept: Short-Run Profit Maximization 1 Quest The graph to the right depicts the demand for caffe lattes at a local coffeehouse along with the average total cost and marginal cost of producing lattes Suppose the coffeehouse is in a monopolistically competitive market in the short run How many cafle lattes should this coffechouse produce to maximize profits?units (Enter a numeric response using an intoger) MC 480 e 4.35 ATC 363 3.00 MR 32 80 Quantity of caffe lattes (per day) Enter your answer in the answer box and then click Check Answer 2 parts remaining Clear All Check Answ Question 37 (1/1) Question 38 (1/1) Question 39 (1/1) e

Answer 1

Answer

Profit(Pr) = TR - TC

where TR = Total revenue, TC = Total Cost

Maximize : Profit(Pr) = TR - TC

First order condition :

d(Pr)/dQ = 0 => d(TR- TC)/dQ = 0 => d(TR)/dQ - d(TC)/dQ = 0 => MR - MC = = => MR = MC

where Q = Quantity, MR = Marginal revenue = d(TR)/dQ and MC = Marginal Cost = d(TC)/dQ

Hence Profit maximizing condition is as follows:

In order to maximize profit a firm produces that quantity at which MR = MC

We can see from above graph that Quantity at which MR = MC(or quantity at which MR and MC curve intersect) is Q = 32

Hence In order to maximizes profit, The amount of caffe lattes this coffeehouse should produce is 32 caffee lattes.