question archive The following table shows the cost data and demand schedule for a typical firm producing board games in a monopolistically competitive market in the short run
The following table shows the cost data and demand schedule for a typical firm producing board games in a monopolistically competitive market in the short run
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The following table shows the cost data and demand schedule for a typical firm producing board games in a monopolistically competitive market in the short run.
Fill in the values in the Total Revenue, Marginal Revenue, Marginal Cost, and Average Total Cost columns in the following table and then answer the questions that follow.
| Quantity (Board games) | Price (Dollars per game) | Total Cost (Dollars per day) | Total Revenue (Dollars per day) | Marginal Revenue (Dollars) | Marginal Cost (Dollars) | Average Total Cost (Dollars) |
|---|---|---|---|---|---|---|
| 1 | $10 | $17 | ||||
| 2 | $9 | $20 | ||||
| 3 | $8 | $27 | ||||
| 4 | $6 | $32 | ||||
| 5 | $4 | $35 | ||||
| 6 | $3 | $48 | ||||
| 7 | $2 | $56 | ||||
| 8 | $1 | $64 |
1. Under monopolistic competition, how many board games that a typical firm will produce, and how much is the price per board game in the short run?
2. According to the typical firm's Total Revenue, Marginal Revenue, and Marginal Cost, what and how will the firm be?
3. According to the typical firm's Average Total Cost, how is the level of excess capacity in this monopolistically competitive market?
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| Quantity (Board games) | Price (Dollars per game) | Total Cost (Dollars per day) | Total Revenue (Dollars per day) | Marginal Revenue (Dollars) | Marginal Cost (Dollars) | Average Total Cost (Dollars) |
|---|---|---|---|---|---|---|
| 1 | $10 | $17 | $10 | - | - | $17 |
| 2 | $9 | $20 | $18 | $8 | $3 | $10 |
| 3 | $8 | $27 | $24 | $6 | $7 | $9 |
| 4 | $6 | $32 | $24 | $0 | $5 | $8 |
| 5 | $4 | $35 | $20 | $-4 | $3 | $7 |
| 6 | $3 | $48 | $18 | $-2 | $13 | $8 |
| 7 | $2 | $56 | $14 | $-4 | $8 | $8 |
| 8 | $1 | $64 | $8 | $-6 | $8 | $8 |
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1. Under monopolistic competition, the firm will produce 2 board games at a price of $9. Since at no point MR=MC and at all the point the firm is facing losses so the firm will choose a point where its loss is minimized. At output level 2 not only his cost is minimized but also MR>MC.
2. According to the average revenue and marginal cost, the firm is one faced with kinked demand curve. This implies the firm might be in a oligopolistic setting.
3. According to socially optimum level of production a firm should produce at a level where MC intersects the ATC from below and at the minimum point. According to the table, this condition is satisfied when the level of output is either 7 or 8. But at this level the marginal revenue is negative and is not considered by the firm for production. But at the production level 4, the ATC is also $8 where the marginal revenue is 0 and the total revenue is maximized. So excess capacity would be 2 (4-2) board games.
