Suppose that a typical firm in a monopolistically competitive industry faces a demand

curve given by:

q = 60 − (1/2)p, where q is quantity sold per week.

The firm’s marginal cost curve is given by: MC = 60.

In addition to providing the quantitative answers for the question, please also describe
the approach you used to arrive at your conclusions.

Solution:
I plotted the graph q = 60 – 1/2p. The p is in the vertical axis and the q on the horizontal
axis. I then draw a line across p = 60 since MC = 60. For me to find the marginal
revenue, I am privy that the slope is twice more than the revenue slope. I did algebra for
q= 60 – 1/2p which lead to p = 120-2q. I then recheck to see if the formula is right by
plotting the graph again. Then I multiply 2q by 2 so that the slope is two times more.

The formula for marginal revenue would be p = 120-4q. I plotted the formula in the
graph. At 15 q the MC = MR at 60 p, I went to the revenue slope where 15 q is and
found that the slope intersects at 90. This indicates that the most efficient quantity
before production becomes inelastic at 15 and that demand shows that 15 units can be
charged at 90 dollars each to have all units sold.

MR = 120 – 2(2q) = 120 – 4q

Since MR = MC = 60,
120 – 4q = 60
4q = 120 – 60
4q = 60
q = 15 units.

Since p = 120 – 2q, and q = 15 units

p = 120 – 2(15)
p = 120 – 30
p = 90 dollar

Hance,

1.
The firm will produce 15 units.

2.
The firm will charge each unit at 90 dollars.

Reference

Rittenberg, L. & Tregarthen, T. (2009). Principles of Economics. Flat World

Knowledge. https://my.uopeople.edu/pluginfile.php/1278179/mod_page/
content/18/Principles%20Of%20Economics%20Chapter10.pdf