Consider a monopolistically competitive firm facing an indirect demand curve given by P = 20 – 2Q. If the profit-maximizing price is 16, what is the marginal cost?
a) $14
b) $10
c) $12
d) cannot be determined from the information given.
The correct option is C.) $12
At the profit-maximizing level for a monopolistically competitive firm,
MR = MC
P = 20 -2Q
At P = 16, Q= 2
TR = P.Q
= (20-2Q).(Q)
= 20Q - 2Q^2
MR= dTR/dQ = 20 -4Q
MR = 20 - 4(2)
= 12
Thus, MC = 12
Consider a monopolistically competitive firm facing an indirect demand curve given by P = 20 –...
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