Table 10.5 Table 10.5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 10.5.The firm's profit-maximising or loss-minimising price and quantity are
A)price = $10; quantity = 5.
B)price = $12; quantity = 4.
C)The firm should shut down temporarily.
D)This cannot be determined from the information given.

Question

Table 10.5  Table 10.5 shows the demand and cost data facing a monopolistically competitive producer of canvas bags.
-Refer to Table 10.5.The firm's profit-maximising or loss-minimising price and quantity are
A)price = $10; quantity = 5. 
B)price = $12; quantity = 4. 
C)The firm should shut down temporarily. 
D)This cannot be determined from the information given.

Quizplus · Accepted Answer

To find the profit-maximizing quantity, we look for the quantity at which marginal revenue equals marginal cost. From the table, we can see that at quantity 4, the marginal revenue is $10 and the marginal cost is $12, so this is the profit-maximizing quantity. To find the price, we look at the demand curve at this quantity and see that it gives a price of $12. Therefore, the firm's profit-maximizing price and quantity are price = $12; quantity = 4.

Table 105 Table 10