Monopolistic competition Exercise 1. You are the manager of a monopolistically competitive firm. The demand for your product is described by the function P = 100 - 4Q. Your cost curve is TC = 50 + 8.5Q$^2$ 1. What is the profit-maximizing level of output and what price should you charge? 2. What do you expect to happen with the demand for the product your firm supply to the market when short-run period is over? Solution
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First, we need to find the marginal revenue, which is the derivative of the demand function: MR = d(100-4Q)/dQ = 100-8Q. Next, we need to find the marginal cost, which is the derivative of the total cost function: MC = d(50+8.5Q^2)/dQ = 17Q. Setting MR = MC, we Show more…
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