Question

Draw this firm graph and include Demand curve, MC curve, MR curve and ATC curve.

show the firms profit

4. The following chart depicts the revenues and costs for a firm in monopolistic competition. MCAT ATCTS Profit te 9 20 Quantity Price TR 0 100 9.50 9.50 18 8.50 25.50 4 18 3 2 7.50 37.50 7 42 6.50 45.50 - 48 5.50 49,50 10 5 50 11 4 .50 49.50 MR ATR TTC - 6 9.50 8 8.50 8.50 7.50 9.50 6.50 12 5.50 17.50 4.50 23.50 3.50 29 2.50 36 11.50 0.50 60 -0.50 78 I 2.50 5.50 3.50 3.91 4:14 4.50 5 156 18 7.09 18.5 16.5 12 4.5 9 45 -28.5

Answer 1

The graph plot is provided below

Demand and MR are downward sloping

MC is U-shaped and so is ATC

Market outcome is determined where MR = MC and this occurs at Q = 5 units

Corresponding price level is $7.50 per unit. Average total cost is $3.50 per unit

Hence profit is (7.50 - 3.50)*5 = $20.

Monopolistic competition and profit maximiziation Market outcome Profit Dollars 0 1 2 3 4 5 7 8 9 10 11 12 6 Quantity +Demand MR -MC --- ATC