CA Foundation · Business Economics · Price Determination in Different Markets
A monopolistically competitive firm faces the demand curve P = 60 - 2Q and has a constant marginal cost of ₹20 per unit. What output maximises its profit in the short run?
The profit-maximising output is 10 units. Total revenue is 60Q - 2Q², so marginal revenue is 60 - 4Q. Equating this to marginal cost of ₹20 gives Q = 10, with price ₹40. Setting price equal to marginal cost would wrongly give 20 units.
- A5 units
- B10 unitsCorrect
- C15 units
- D20 units
Explanation
TR = 60Q - 2Q², so MR = 60 - 4Q. Setting MR = MC gives 60 - 4Q = 20, so Q = 10. Check: price is 40, above MC of 20. Q = 20 results from setting P = MC (40 = 60-2Q... gives 20), which wrongly ignores that MR lies below price.
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