Answer to Question #149839 in Economics for Sophia Cannatella

Question

You are a manager of a monopolistically competitive hamburger restaurant. Research analysts report that the marginal cost of a hamburger is constant and is equal to $2 per hamburger. They also report that the demand is given by Q = 200 – 10P, where Q is the quantity of hamburgers demanded per day and P is the price.



(a) What is the profit-maximizing quantity of hamburgers? Show your work. (2 pt)





(b) What is the profit-maximizing price of hamburgers? Show your work. (2 pt)





(c) Suppose your average total cost is the same as the marginal cost. What is your economic profit? Show your work. (2 pt)







(d) How would your answer to (a) and (b) change when a pandemic like Covid-19 occurs in your region? Use the information given in the figure to explain in no more than 3 sentences. (2 pt)

Answer 1

(a) The profit-maximizing quantity of hamburgers can be found at MR = MC, so:

P = 20 - 0.1Q,

$MR = TR'(Q) = 20 - 0.2Q,$

$20 - 0.2Q = 2,$

Q = 90 units.

(b) The profit-maximizing price of hamburgers is:

$P = 20 - 0.1\times90 =$ $11.

(c) If your average total cost is the same as the marginal cost, then your economic profit is:

$TP = (P - ATC)\times Q = (11 - 2)\times90$ = $810.

(d) If a pandemic like Covid-19 occurs in your region, then the demand will decrease, as a result both price and quantity, so the economic profit will decrease too.