1. If you start a business in what is considered to be a monopolistically competitive market and are earning economic profits in the short run, would you expect them to continue doing so in the long run? Why?

2. A friend has just started up her own business. She firm asks you how much to charge for her product to maximize profits. The demand schedule for it is given by the first two columns in the table below; its total costs are given in the third column. For each level of output, you can calculate total revenue, marginal revenue, average cost, and marginal cost. The profit-maximizing level of output can be found at the point where TR - TC is greatest, or where MR = MC.

a. What is the profit-maximizing level of output for her product?

b. How much will she earn in profits?

Price Quantity TC

$25.00 0 $130

$24.00 10 $275

$23.00 20 $435

$22.50 30 $610

$22.00 40 $800

$21.60 50 $1,005

$21.20 60 $1,225

Answer rating: 100% (QA)

Answer In a monopolistically competitive market firms can earn economic profits in the short run due ... View the full answer