Question
Asked Nov 5, 2019
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Р
МС
$4.00
ATC
$3.00
D
$2.50
$2.00
MR
3,000 3,500 4,000
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Р МС $4.00 ATC $3.00 D $2.50 $2.00 MR 3,000 3,500 4,000

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The maximum profit under imperfect competition is:
-$1,500
а.
b. $1,500
$4,500
с.
d. $12,000
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The maximum profit under imperfect competition is: -$1,500 а. b. $1,500 $4,500 с. d. $12,000

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Expert Answer

Step 1

The imperfect competition is a market condition in which there will be many sellers selling differentiated goods and services. There are markets with a large number of sellers selling similar goods known as the monopolistic competition, a single seller market known as monopoly, a few sellers sharing the whole market known as the oligopoly which are some of the important imperfect competitive market forms. There will be barriers to entry into the market and exit from the market under the imperfect market forms and the firms will have the market power and control over price.

Step 2

The profit maximization under imperfect market states that the firm should produce at the profit maximizing level which is obtained at the intersection of the MR and MC. The MR and MC intersect at the price of $2 whereas the imperfect firms would not charge this price. They would extend the quantity to the demand and the price at that intersection will be the price charged by the seller. This is obtained at the price of $4.

Step 3

The profit maximizing output is thus 3,000 and the price is $4. The profit will be obtained by subtracting the average total cost of producing an output from the pri...

Profit of imperfect firm = (Price -ATC)x Quantity
=(4-2.5)x3,000
1.5x3,000
=4,500
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Profit of imperfect firm = (Price -ATC)x Quantity =(4-2.5)x3,000 1.5x3,000 =4,500

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