Sticky Stuff produces cases of taffy in a monopolistically competitive market. The inverse demand curve for its product is P = 50 - Q, where Q is in thousands of cases per year and P is dollars per case. Sticky Stuff can produce each case of taffy at a constant marginal cost of $10 per case and has no fixed cost. Its total cost curve is therefore TC = 10Q. a) To maximize profit, how many cases of taffy should Sticky Stuff produce each month? b) What price will Sticky Stuff charge for a case of taffy? c) How much profit will Sticky Stuff earn each year? d) In reality, firms in monopolistic competition generally face fixed costs in the short run. Given the
Exercise 5.3
Sticky Stuff produces cases of taffy in a
a) To maximize profit, how many cases of taffy should Sticky Stuff produce each month?
b) What
c) How much profit will Sticky Stuff earn each year?
d) In reality, firms in monopolistic competition generally face fixed costs in the short run. Given the information above, what would Sticky Stuff's fixed costs have to be in order for this industry to be in long-run equilibrium? Explain.
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