Question

The above graph shows two possible marginal cost curves for the production of hoodies (hooded sweatshirts). Assume that the hoodie market is perfectly competitive. If a hoodie industry consists of 10 firms with a marginal cost curve of MC 1 and 20 firms with a marginal cost curve of MC 2, what is the quantity of hoodies supplied at a price of $12 per hoodie?

$14 $13 MC 1 $12 $11 MC 2 $10 $9 $8 Marginal Cost of Hoodies $7 $6 $5 $4 $3 $2 $1 $0 0 100 200 200 300 400 500 600 700 800 900 1000 Quantity of Hoodies

Answer 1

Ans. The profit maximizing output is given where price equals the marginal cost.

For firms with marginal cost curve MC1, the profit maximizing level of output = 500 hoodies

Total number of such firms = 10

=> Total production by these 10 firms = 10*500 = 5000 hoodies

For firms with marginal cost MC2, the profit maximizing level of output = 900 hoodies

Total number of such firms = 20

=> Total production by these 20 firms = 20*900 = 18000 hoodies

Thus, total market production of hoodies = 18000+5000 = 23000 hoodies.

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