ES2550: Week 9 Monopolistic Competition
Consider the following graph of a monopolistically competitive firm selling DVDs
How many DVDs should be sold to rent per day to maximize profit? Briefly explain your answer. The formula is E=MR=MC=P, this is the point where they meet and that point where I can tell on the x-axis is 55 DVDs per day. The y-axis is $1.75 per DVD. To maximize profit 55 DVDs need to be sold to rent per day to maximize profit. What is the economic profit for this firm operating where economic profit is maximized?
The point on which profit has been maximized as stated in part A is 55 DVDs and cost per DVD at this point is $1.75 so profit will be ….. 55 X $1.75 = $96.25
c. Will this firm likely continue operating in the long run? Briefly explain your answer.
Yes, this firm will likely continue operating in the long run in similar fashion. Considering the above graph, it seems that as AVC is increasing which makes it seem that in the long run the firm could not operate in profit but this is untrue. It is a well known fact that AVC renders into FC (fixed costs) so this firm can carry on with profit d. Explain the impact on this firm of other firms leaving the market. Would this action alter your decision made in part C?
Attach a Word document of 150 to 250 words that contains all answers. Format: Double line space, Times New Roman, 12-point font
Formulas and calculations must be shown along with the final correct answer