Monopolistically competitive firm faces the following demand curve for its product: Price ($) 40 36 32 28 24 20 16 12 8 4 Quantity 4 10 16 22 28 34 40 46 52 58 The firm has total fixed costs of $100 and a constant marginal cost of $25 per unit. The firm will maximize profit with the production of

The firm will maximize profit with the production of 16 units of output

In monopoly, the point where the marginal revenue equals the marginal cost is the firm's maximum profit point.

Price    Q       TR=Price×Q     MR=ΔTR/ΔQ            MC

40         4                160                     -                        -

36        10               360                  33.33                 25

32        16                512                  25.33                 25

28        22               616                  17.33                  25

24        28               672                  9.33                   25

20        34               680                  1.33                    25

16         40               640                 -6.67                   25

12         46               552                 -14.67                  25

8          52               416                  -22.67                 25

4          58               232                 -30.67                 25

If the firm is producing at a quantity of output where MR exceeds MC, then, the firm should keep expanding their production because each marginal unit is giving profit by adding more revenue.

Firm will produce up to the quantity where MR = MC.

If the firm is producing at a quantity where MC exceeds MR, then, the firm can only increase its profits by decreasing its quantity of output.

Therefore, the firm will maximize profit with the production of 16 units of output.

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Production of 16 units

Explanation:

In monopoly firms, where the marginal revenue equals marginal cost, that point is called the firm's maximum profit point.

Price    Q      TR=Price×Q   MR=ΔTR/ΔQ   MC

40     4          160                -                    -

36     10  360      33.33                   25

32       16         512        25.33                   25

28       22  616              17.33                   25

24     28     672       9.33                   25

20     34        680               1.33                   25

16        40        640              -6.67                   25

12     46        552              -14.67             25

8     52        416             -22.67                   25

4     58        232             -30.67                   25

Hence the maximum profit point of the business will be on the production of 16 units as the marginal cost of the business becomes equal to the marginal revenue on producing 16 units which is the maximum profit point of the firm.

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