# Market Structures

Week 6

Discussion 1

“Market Structures” Please respond to the following:

* From the scenario, assuming Katrina’s Candies is operating in the monopolistically competitive market structure and faces the following weekly demand and short-run cost functions:

VC = 20Q+0.006665 Q2 with MC=20 + 0.01333Q and FC = \$5,000

P = 50-0.01Q and MR = 50-0.02Q

*Where price is in \$ and Q is in kilograms. All answers should be rounded to the nearest whole number.

Algebraically, determine what price Katrina’s Candies should charge in order for the company to maximize profit in the short run. Determine the quantity that would be produced at this price and the maximum profit possible.

Solution

Firm will get maximum profit in monopolistic competitive market structure when

Marginal Revenue(MR)=Marginal Cost(MC)

We know that

TC = VC + FC

TC =20Q + 0.006665Q2 + 5,000

MC = 20 + .01333Q

MR = 50 – 0.02Q

MR = MC (Profit max. condition)

– 0.02Q = 20 + 0.01333Q

50-20 = .01333+ .02Q

30 =0.03333Q

900 kgs = Q

As provided

P = 50 – 0.01Q

P = 50 – 0.01*900

P = 50 – 9

P = \$41

Profit = TR – TC

900*41 – 20*900+5000+0.006665*(810000)

36900 – (23000+5398.65)

\$8,501.35

Quantity will 900Kgs and Profit will be \$8501.

Discussion 2

“Maximizing Revenue” Please respond to the following:

* From the scenario, assuming Katrina’s Candies is operating in the monopolistically competitive market structure and faces the following weekly demand and short-run cost functions:

VC = 20Q+0.006665 Q2 with MC=20 + 0.01333Q and FC = \$5,000

P = 50-0.01Q and MR = 50-0.02Q

*Where price is in \$ and Q is in kilograms. All answers should be rounded to the nearest whole number.

Algebraically, determine what price Katrina’s Candies should charge if the company wants to maximize revenue in the short run. Determine the quantity that would be produced at this price and the maximum revenue possible

R=p x q

R=(50-0.01Q) x Q

R= 50q-0.01q^2

R=50-2(0.01q)

2(0.01)q=50

0.01q=25

Q=25/0.01

Q=2500

The quantity, 2500kg, can be inserted to solve for p.

P=50-0.01(2500)

P=50-25

P=25

Quantity will be produced 2500kg and maximum Revenue will be \$62,500