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In the short run, a firm in a monopolistically competitive industry has a cost function equal to C(Q) = 300 + 5Q where Q is annual output, so the firm's annual fixed cost is 300 and its marginal cost is 5. Each firm in the industry has its own demand equal to QD = 100 – 4P, so its inverse demand is P = 25 – 0.25QD, and its revenue is Qp(25 – 0.25QD), and its marginal revenue is 25 – 0.5QD. %3D (a) Calculate the price and quantity that maximizes the firm's profits. What is the firm's annual profit at that price? (b) Calculate the elasticity of demand at the monopoly price and quantity. (c) Assuming new firms have the same costs and can expect the demand to be the same for them as it is for existing firms, can new firms profitably enter this industry?

In the short run, a firm in a monopolistically competitive industry has a cost function equal to C(Q) = 300 + 5Q where Q is annual output, so the firm's annual fixed cost is 300 and its marginal cost is 5. Each firm in the industry has its own demand equal to QD = 100 – 4P, so its inverse demand is P = 25 – 0.25QD, and its revenue is Qp(25 – 0.25QD), and its marginal revenue is 25 – 0.5QD. %3D (a) Calculate the price and quantity that maximizes the firm's profits. What is the firm's annual profit at that price? (b) Calculate the elasticity of demand at the monopoly price and quantity. (c) Assuming new firms have the same costs and can expect the demand to be the same for them as it is for existing firms, can new firms profitably enter this industry?

Principles of Economics, 7th Edition (MindTap Course List)
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: Monopolistic Competition
Section: Chapter Questions
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8. In the short run, a firm in a monopolistically competitive industry has a cost function equal to C(Q) = 300 + 5Q where Q is annual output, so the firm's annual fixed cost is 300 and its marginal cost is 5. Each firm in the industry has its own demand equal to QD = 100 – 4P, so its inverse demand is P = 25 – 0.25QD, and its revenue is Qp(25 – 0.25QD), and its marginal revenue is 25 – 0.5QD. (a) Calculate the price and quantity that maximizes the firm's profits. What is the firm's annual profit at that price? (b) Calculate the elasticity of demand at the monopoly price and quantity. (c) Assuming new firms have the same costs and can expect the demand to be the same for them as it is for existing firms, can new firms profitably enter this industry? (d) Is the restaurant industry a good example of monopolistic competition. Why or why not?
Transcribed Image Text:8. In the short run, a firm in a monopolistically competitive industry has a cost function equal to C(Q) = 300 + 5Q where Q is annual output, so the firm's annual fixed cost is 300 and its marginal cost is 5. Each firm in the industry has its own demand equal to QD = 100 – 4P, so its inverse demand is P = 25 – 0.25QD, and its revenue is Qp(25 – 0.25QD), and its marginal revenue is 25 – 0.5QD. (a) Calculate the price and quantity that maximizes the firm's profits. What is the firm's annual profit at that price? (b) Calculate the elasticity of demand at the monopoly price and quantity. (c) Assuming new firms have the same costs and can expect the demand to be the same for them as it is for existing firms, can new firms profitably enter this industry? (d) Is the restaurant industry a good example of monopolistic competition. Why or why not?
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