Suppose that a typical firm in a monopolistically competitive industry faces a demand curve given by q = 60 − (1/2)p, where q is quantity sold per week. The firm's marginal cost curve is given by MC = 60. 1. How much will the firm produce in the short run? 2. What price will it charge?

The firm should produce a quantity 15, and the price it will charge is $90 per item.

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The demand for any product is dependent on the price at which it is offered to buyers. The relation between the price and the quantity buyers are willing to buy is decided by many factors, some of which are the type of product, the number of sellers, and the number...

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The demand for any product is dependent on the price at which it is offered to buyers. The relation between the price and the quantity buyers are willing to buy is decided by many factors, some of which are the type of product, the number of sellers, and the number of buyers.

In the question, the demand curve of the product sold by the firm is given by `q =60 - p/2` , where q is the quantity and p is the price. The marginal cost curve of the product is given by MC = 60.

`q = 60-p/2`

`=gt p/2 = 60-q`

`=gt p = 120 - 2q`

The revenue earned by the firm when q items are sold is `R = q*(120 - 2q) = 120q - 2q^2` . The marginal revenue is

`MR = (d(120q - 2q^2))/(dq) = 120 - 4q`

The firm should produce a quantity q such that MR = MC.

120 - 4q = 60

=> 4q = 60

=> q = 60/4

=> q = 15

As p = 120 - 2q, at q = 15, p = 120 - 30 = 90

The number of items that the firm should ideally produce is one at which profit is maximized. Therefore, the firm should produce a quantity 15, and it can be sold at $90.

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