CMA Foundation · Fundamentals of Business Economics and Management · Forms of Market
A Jaipur sweet shop in monopolistic competition faces the demand curve P = 100 − 2Q and has a constant marginal cost of Rs 20 per unit. What are the profit-maximising output and price?
Output is 20 units and price is Rs 60. Marginal revenue from P = 100 − 2Q is 100 − 4Q; equating it to marginal cost of 20 gives Q = 20, and substituting into the demand curve gives a price of 60.
- AQ = 20, P = 60Correct
- BQ = 40, P = 20
- CQ = 20, P = 20
- DQ = 30, P = 40
Explanation
Total revenue = 100Q − 2Q², so MR = 100 − 4Q. Setting MR = MC: 100 − 4Q = 20 gives Q = 20. Price = 100 − 2(20) = 60. Q = 40 with P = 20 is the perfectly competitive outcome where P = MC, which is wrong because MR, not price, is equated to MC.
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