Question

You are the manager of a monopolistically competitive firm, and your demand and cost functions are given by Q = 36 – 4P and C(Q) = 124 – 16Q + Q^{2}.

[**NOTE: **MC(Q) = -16+2Q]

- Calculate your firm’s profits level.

Step 1

As a Manager of the Monopolistic competitive firm, the demand function is given as

Q = 36 – 4P

Cost function as

and C(Q) = 124 – 16Q + Q^{2}

So if the *P* would be an inverse demand curve. Then, plugging values by calculating the demand curve in terms of P=

Direct demand curve:

Q=36−4PQ

So in P, we would get the inverse demand curve.

P=9−0.25Q

Step 2

The Monopolistic firms can maximize their profits at a point where marginal revenue is equivalent to their marginal cost. That is:

MR=MC

So the Total revenue would be

TR=P∗Q

Now putting values in TR = P*Q

TR=(9−0.25Q)Q

=9Q−0.25Q2

Therefore the marginal revenue is:

MR=ΔTRΔQ

=9−0.5QMR

So the firm's total cost would be at-:

C(Q)=124−16Q+Q2

Now to calculate for the MC we get=

MC=ΔC(Q)ΔQ

=−16+2...

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