Asked Jan 4, 2020

GoGo Pizza is producing at the profit-maximizing level of output in a monopolistically competitive market. Show GoGo Pizza’s profit-maximizing level of output, selling price, and a positive profit in a diagram. Briefly explain. Does GoGo Pizza have an incentive to produce at the level of output that maximizes the social welfare? Explain with the diagram from the first question.


Expert Answer

Step 1

(i) A monopolistic competitive firm maximises its profits, he will produce at a price where Marginal revenue (MR) = Marginal Cost (MC) and the perpendicular line that touches the demand curve above that is at price, $P at which the output is sold. The quantity produced by the monopolist at this price is Q units.

Step 2

According to the figure (1), The profit is denoted by the shaded region. It shows the difference between the price and the Average Total Cos...

Economics homework question answer, step 2, image 1

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