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.
1. How much will the firm produce in the short run?
2. What price will it charge?
1. In the short run, the firm will produce where marginal cost equals marginal revenue. To find the quantity, we need to express the demand curve in terms of quantity: p = 120 - 2q. Setting MC equal to MR:
MC = MR
60 = 120 - 2q
Solving for q:
2q = 120 - 60
2q = 60
q = 30
So the firm will produce 30 units in the short run.
2. To find the price, we substitute the quantity into the demand curve: p = 120 - 2(30). Simplifying:
p = 120 - 60
p = 60
Thus, the firm will charge a price of $60 in the short run.