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?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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