Consider a simple monopolistic competition industry (many firms) in which each firm in the industry has one store. The store costs $200 per week and the marginal cost is $10 per unit of output in addition to the fixed cost of the store. Hint: Mathematically this problem can be solved just like a monopoly problem. (a) If the typical the demand facing each individual firm is QD = 40−P each week, what price will a typical firm in this industry charge? (Hint: If QD = 40 − P then P = 40 − QD and MR = 40 − 2QD). (b) Is the firm making a positive profit? What is the producer surplus? What is the profit after fixed costs? (c) Will new firms enter the market if demand stays the same and new firms face the same demand and have the same costs?

Consider a simple monopolistic competition industry (many firms) in which each firm in the industry has one store. The store costs $200 per week and the marginal cost is $10 per unit of output in addition to the fixed cost of the store. Hint: Mathematically this problem can be solved just like a monopoly problem. (a) If the typical the demand facing each individual firm is QD = 40−P each week, what price will a typical firm in this industry charge? (Hint: If QD = 40 − P then P = 40 − QD and MR = 40 − 2QD). (b) Is the firm making a positive profit? What is the producer surplus? What is the profit after fixed costs? (c) Will new firms enter the market if demand stays the same and new firms face the same demand and have the same costs?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter14: Monopoly

Section: Chapter Questions

Problem 14.5P

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