PROBLEMS & EXERCISES


SOLUTIONS & DISCUSSION


UNIT THREE (FOR EXAM 3)


Unit Three: Assignment 1: Problem 5 from page 655


5. If a monopolistically competitive firm has a constant marginal cost of $6 and the following price-quantity combinations, what output should it choose?

P---Q

16--6

14--8

12-10

10-12

8--14

6--16

4--18

2--20


To solve this, you should use the MR = MC method. First add a TR (total revenue) column to your table. Then add a column for MR. As long as MR exceeds MC you should continue to increase the output level. Make sure that your final quantity selection is such that MC does not exceed MR. Try to set up your table before looking at the solution.


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