Economic Homework

Problem 08-07

You are the manager of a monopolistically competitive firm, and your demand and cost functions are given by Q = 36 – 4P and C(Q) = 124 – 16Q + Q2. a. Find the inverse demand function for your firm’s product. P = - Q b. Determine the profit-maximizing price and level of production. Instruction: Price should be rounded to the nearest penny (two decimal places). Price: $ Quantity: c. Calculate your firm’s maximum profits. Instruction: Your response should appear to the nearest penny (two decimal places). $ d. What long-run adjustments should you expect? Explain.

	Neither entry nor exit will occur.
	Exit will occur until profits rise sufficiently high.
	Entry will occur until profits are zero.

-2-2

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