Question

Use economic theory and economic models to determine how profits are maximized for a firm operating under monopolistic competition.

Note: your answer should not be more than an A4 paper. Use clear and detailed statements/figures.

Answer 1

In a monopolistic market, there is just one firm that delivers an item. There is outright item separation in light of the fact that there is no substitute. One quality of a monopolist is that it is a benefit expands.

Since there is no opposition in a monopolistic market, a monopolist can control the cost and the amount requested. The degree of yield that amplifies an imposing business model's benefit is determined by likening its negligible expense to its minimal income.

Peripheral Cost and Marginal Revenue:

The peripheral expense of creation is the adjustment in the all out cost that emerges when there is an adjustment in the amount delivered. In analytics terms, if the all out cost work is given, the peripheral expense of a firm is determined by taking the principal subordinate concerning the amount.

The negligible income is the adjustment in the complete income that emerges when there is an adjustment in the amount delivered. The absolute income is found by duplicating the cost of one unit sold by the all out amount sold. For instance, if the cost of a decent is $10 and a monopolist sells 100 units of an item for each day, its absolute income is $1,000.

The peripheral income of creating 101 units for each day is $10. With 101 units delivered and sold, the absolute income every day increments from $1,000 to $1,010. The negligible income of a firm is additionally determined by taking the main subsidiary of the all out income condition.

Computing the Maximized-Profit in a Monopolistic Market:

In a monopolistic market, a firm expands its absolute benefit by comparing negligible expense to peripheral income and explaining at the cost of one item and the amount it must create.

For instance, assume a monopolist's absolute cost work is

P=10Q+Q^2

Where:

P=price

Q=quantity

Its interest work is

P = 20 - Q

Furthermore, the complete income (TR) is found by duplicating P by Q:

TR =P×Q

In this way, the all out income work is:

TR = 25Q - Q^2

The peripheral cost (MC) work is:

MC = 10 + 2Q

The negligible income (MR) is:

MR = 30 - 2Q

The monopolist's benefit is found by deducting complete expense from its all out income. As far as math, the benefit is augmented by taking the subordinate of this capacity:

π=TR+TC

Where:

π=profit

TR=total income

TC=total cost

At that point you set it equivalent to zero. Along these lines, the amount provided that augments the monopolist's benefit is found by comparing MC to MR:

10 + 2Q = 30 - 2Q

The amount it must create to fulfill the balance above is 5. This amount must be stopped once again into the interest capacity to discover the cost for one item. To amplify its benefit, the firm should its of the item for $20 per unit. The complete benefit of this firm is then $25, or:

TR - TC = 100 - 75