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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 + Q2.               [NOTE: MC(Q) = -16+2Q]Calculate your firm’s profits level.

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 + Q2.

               [NOTE: MC(Q) = -16+2Q]

  1. Calculate your firm’s profits level.
check_circleAnswer
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 + Q2

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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