Question
Consider the take-away supplier OzBurgers that operates in a monopolistically competitive market where it has market power to set its prices. OzBurger's marginal cost is
Consider the take-away supplier OzBurgers that operates in a monopolistically competitive market where it has market power to set its prices. OzBurger's marginal cost is MC = 10. (It uses one worker to produce each unit of output; and each worker costs the firm 10 to hire.) OzBurger has zero fixed cost.
Suppose OzBurger faces demand for its output: P = 160 q. Calculate the profit-maximising price and quantity traded.
Suppose due to COVID-19 demand for Ozburger's output decreases to P = 100 q. How does this affect OzBurger's profit-maximising price and quantity traded?
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