# ECON 100 Monopolistic Competition Model Question

St. Charles Community College
ECON 100   Survey Economics
Monopolistic Competition Example

Assume a firm that a firm that produces a single product is operating as a monopolistic competitor.  We are given the following demand schedule for the firm’s product:

 Price Quantity (\$) (Units) 16 0 15 300 14 600 13 900 12 1200 11 1500 10 1800 9 2100 8 2400 7 2700 6 3000

Part a:
Using the data shown above, and utilizing the axes shown below,  construct a demand curve for the firm’s product.

Part b:
Assume that the firm has a variable and fixed cost schedule that contains the following values:

 Quantity Fixed Costs Variable Costs (Units / Mo. (\$) (\$) 0 4100 0 300 4100 2300 600 4100 3000 900 4100 3900 1200 4100 5000 1500 4100 6300 1800 4100 7800 2100 4100 9500 2400 4100 11400 2700 4100 13500 3000 4100 15800

Complete the following table using the data given above and the formulas given below:

 Quantity (Units Per Month) Fixed Costs (\$) Variable Costs   (\$) Total Costs (\$) Marginal Costs (\$) Average Total Costs (\$) Price (\$) Total Revenue (\$) Marginal Revenue (\$) Profit (\$) 0 4100 0 16 300 4100 2300 15 600 4100 3000 14 900 4100 3900 13 1200 4100 5000 12 1500 4100 6300 11 1800 4100 7800 10 2100 4100 9500 9 2400 4100 11400 8 2700 4100 13500 7 3000 4100 15800 6

The following formulas are given as a guide in your calculations:

1. Total cost = (fixed cost) + (variable cost)
2. Marginal cost = (change in total cost)  /  (change in output or quantity)
3. Average total cost = (Total cost) / (Output or quantity)
4.  Total revenue = (Price) X (Quantity)
5. Marginal Revenue = (Change in total Revenue) / (Change in output)
6. Profit = (Total Revenue) – (Total Cost)

Part c:
Using the calculated data from part “b”, and the following set of axes, plot the total revenue curve and the total cost curve.  Then locate the region of the graphs which represent the maximum profit level of the firm.

Part d:
Using the data that you calculated in the part b above, and utilizing the axes that are given below, plot the demand curve, the marginal revenue curve, the marginal cost curve, and the average total cost curve.

Part e:
Using the data that you calculated in part b, and using the axes shown below, plot the firm’s profit curve.