Question

In: Economics

Assume a firm in a monopolistically competitive market faces a demand curve which includes the following points:

Price 12 11 10 9 8 7 6 5

Quantity 2 3 4 5 6 7 8 9

If a profit-maximizing firm chose to produce 6 units of the good, what is the marginal cost of the 6th unit?

8

6

3

5

Expert Solution

Price	Quantity	Total Revenue	Marginal Revenue (MR)
12	2	24	---
11	3	33	9
10	4	40	7
9	5	45	5
8	6	48	3
7	7	49	1
6	8	48	-1
5	9	45	-3

Total revenue = Price * Quantity.

Marginal Revenue (MR) = Change in TR / Change in Quantity.

Monopolisticaly competitive firm produces at MR = MC in order to maximize profit.

monopolistic competitive firm choose to produce 6 units, so at 6 units of output marginal revenue (MR) would be equal to marginal cost (MC).

At 6 units of output, Marginal revenue is 3.

So, the marginal cost would be 3 also.

Therefore, the marginal cost of the 6th unit of output is 3.

Answer: Option (C)

Rahul Sunny answered 2 years ago

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