Use the following to answer questions :
Table 9-2
-The demand curve facing an imperfect competitor is given in Table 9-2.MC is constant at $3.50.If the firm is able to produce at any output level, then it maximizes profits at:
A)P = 9; q = 8.
B)P = 8; q = 12.
C)P = 7; q = 16.
D)P = 6; q = 20.
E)P = 5; q = 22.

Question

Use the following to answer questions :
Table 9-2 
-The demand curve facing an imperfect competitor is given in Table 9-2.MC is constant at $3.50.If the firm is able to produce at any output level, then it maximizes profits at:
A)P = 9; q = 8. 
B)P = 8; q = 12. 
C)P = 7; q = 16. 
D)P = 6; q = 20. 
E)P = 5; q = 22.

Quizplus · Accepted Answer

To maximize profits, the firm should produce at an output where marginal revenue equals marginal cost. From the given demand and price values, marginal revenue can be calculated as follows:

When q = 10, P = 8.5 and TR = 85
When q = 12, P = 8 and TR = 96
∴ MR = (96 - 85)/(12-10) = $5

Since MC is constant at $3.50, the firm should produce until MR = MC, which occurs at q = 16. At q = 16, P = 7, which is the answer choice C. Thus, the best choice(s) is C.

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