2.Monopolistic Competition & Break-Even Analysis

Let's assume that the current market for cell phones ismonopolistically competitive.Each competitor sells a slightly differentiated product, but competes for a share of the market of cell-phone users.If the demand for the Samsung Galaxy s4 is given by the following Demand Function:

and Samsung's AVERAGE TOTAL COST function is given:

a.What is the Total Cost Function for Samsung?

b.What is the Profit-MaximizingPriceandQuantityfor Samsung? What is theProfit?

c.Estimatethe Price Elasticity of Demand at Profit-Maximizing Price and Quantity found in Part b.Give an Interpretation of this Result.(e.g. For a 1% increase...)

d.(CONTINUED...) Using your solutions above, and the same Average Total Cost equation from Problem 2 repeated below, answer the following:

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i.What are the Total Fixed Costs (TFC)?

ii.Flip back to Page 4 and write down the Equilibrium Quantity you solved for in part 2b here ________. Next, what is theAverage Variable Cost(AVC) of producing the Equilibrium Quantity?(Hint: Need, may need TVC equation first.)

iii.Use the equilibrium price (2b), AVC (2dii) and TFC (2di) to estimate the Break-Even Quantity of Output treating AVC as the Variable Cost of production.

iv.Explainwhat effect would a DECREASE in Total Fixed Costs (TFC) of $132 have on theBreak-Even Level of Output? On theprofit-maximizing level of output?(Don't need to solve for number, just increase/decrease/no effect for both break even and profit-maximization).