You are the manager of a monopolistically competitive firm. the present demand curve you face is...

You are the manager of a monopolistically competitive firm. the present demand curve you face is p=100-4Q. your cost function is cQ=50+8.5Q^2

a. What level of output should you choose to maximize profits?

b. What price should you charge?

c. What will happen in you market in the long run? explain

Solutions

Expert Solution

c. In the long run, the market will become similar to perfectly competitive market due to free entry and exit of firms. All the firms make normal profit in the long run. However, the market will choose an output level which is below the MES (Minimum Efficient Scale) i.e. average costs are always higher than the marginal costs. Due to this, the firm tends to be inefficient and incur losses.The firm will have excess capactity of production and under-utilize the available resources

Rahul Sunny answered 1 year ago

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