Demand Equation for a Good Produced by a
Monopolistically Competitive Firm:
P = 10 - Q
Reference: Ref 63
(Demand Equation) If the firm's marginal cost is a constant $2
Per unit, what price will it charge and how many units will it
Produce if it maximizes its profits?
A)$8 and 2 units
B)$7 and 3 units
C)$6 and 4 units
D)$5 and 5 units

Question

Demand Equation for a Good Produced by a
Monopolistically Competitive Firm:
P = 10 - Q
Reference: Ref 6­3
(Demand Equation) If the firm's marginal cost is a constant $2
Per unit, what price will it charge and how many units will it
Produce if it maximizes its profits?
A)$8 and 2 units
B)$7 and 3 units
C)$6 and 4 units
D)$5 and 5 units

Quizplus · Accepted Answer

To maximize profits, a monopolistically competitive firm sets its price where marginal revenue (MR) equals marginal cost (MC). Since the demand equation is P=10-Q, we can find the corresponding MR by taking the derivative of this equation with respect to Q: MR=10-2Q.
Setting MR equal to MC, which is constant at $2 per unit, we can solve for Q:
10-2Q = 2
8 = 2Q
Q = 4
Substituting Q=4 back into the demand equation, we can find the corresponding price:
P = 10-Q = 10-4 = $6
Therefore, the best choice is C with a price of $6 and quantity of 4 units.