You are the manager of a monopolistically competitive firm, and your demand and cost functions are estimated as Q = 25 – ½P and C = Q² + 2Q + 2. What is the firm's maximum profit? -
You are the manager of a monopolistically competitive firm, and your demand and cost functions are estimated as Q = 25 – ½P and C = Q² + 2Q + 2. What is the firm's maximum profit? -
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Please help me ASAP. I will really appriciate it. Thank you
![**Profit Maximization in a Monopolistically Competitive Firm**
You are the manager of a monopolistically competitive firm, and your demand and cost functions are estimated as \( Q = 25 - \frac{1}{2}P \) and \( C = Q^2 + 2Q + 2 \). What is the firm's maximum profit?
**Understanding the Problem:**
1. **Demand Function:**
- \( Q = 25 - \frac{1}{2}P \): This function shows the relationship between quantity demanded (Q) and price (P). Here, as the price increases, the quantity demanded decreases, which is typical in most markets.
2. **Cost Function:**
- \( C = Q^2 + 2Q + 2 \): This function represents the total cost (C) in terms of quantity produced (Q). The cost function includes fixed costs and variable costs that change with the level of output.
To find the firm's maximum profit, follow these steps:
**Step 1:** Find the revenue function.
- Revenue (R) is calculated as price (P) multiplied by quantity (Q).
- From the demand function: \( P = 50 - 2Q \)
- Therefore, Revenue \( R = P \times Q = (50 - 2Q) \times Q = 50Q - 2Q^2 \)
**Step 2:** Calculate the profit function.
- Profit (π) is the difference between total revenue and total cost.
- Total Cost (C) is given by \( C = Q^2 + 2Q + 2 \).
- Thus, the profit function is:
\[
\pi = R - C = (50Q - 2Q^2) - (Q^2 + 2Q + 2) = 50Q - 3Q^2 - 2Q - 2 = 48Q - 3Q^2 - 2
\]
**Step 3:** Find the quantity that maximizes profit.
- To maximize profit, take the derivative of the profit function with respect to Q and set it equal to zero:
\[
\frac{d\pi}{dQ} = 48 - 6Q = 0
\]
- Solving for Q:
\[
6Q = 48 \Rightarrow Q = 8](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb9b15fc7-98d8-4d4f-aae6-fecc35d6b9be%2Fcbadea28-d05c-4ede-86bc-45eb5f7e94e9%2Fzr3qwcw_processed.png&w=3840&q=75)
Transcribed Image Text:**Profit Maximization in a Monopolistically Competitive Firm**
You are the manager of a monopolistically competitive firm, and your demand and cost functions are estimated as \( Q = 25 - \frac{1}{2}P \) and \( C = Q^2 + 2Q + 2 \). What is the firm's maximum profit?
**Understanding the Problem:**
1. **Demand Function:**
- \( Q = 25 - \frac{1}{2}P \): This function shows the relationship between quantity demanded (Q) and price (P). Here, as the price increases, the quantity demanded decreases, which is typical in most markets.
2. **Cost Function:**
- \( C = Q^2 + 2Q + 2 \): This function represents the total cost (C) in terms of quantity produced (Q). The cost function includes fixed costs and variable costs that change with the level of output.
To find the firm's maximum profit, follow these steps:
**Step 1:** Find the revenue function.
- Revenue (R) is calculated as price (P) multiplied by quantity (Q).
- From the demand function: \( P = 50 - 2Q \)
- Therefore, Revenue \( R = P \times Q = (50 - 2Q) \times Q = 50Q - 2Q^2 \)
**Step 2:** Calculate the profit function.
- Profit (π) is the difference between total revenue and total cost.
- Total Cost (C) is given by \( C = Q^2 + 2Q + 2 \).
- Thus, the profit function is:
\[
\pi = R - C = (50Q - 2Q^2) - (Q^2 + 2Q + 2) = 50Q - 3Q^2 - 2Q - 2 = 48Q - 3Q^2 - 2
\]
**Step 3:** Find the quantity that maximizes profit.
- To maximize profit, take the derivative of the profit function with respect to Q and set it equal to zero:
\[
\frac{d\pi}{dQ} = 48 - 6Q = 0
\]
- Solving for Q:
\[
6Q = 48 \Rightarrow Q = 8
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 1 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education