5. (TCO D)   A software producer has fixed costs of $30,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:

                         TVC                           Price
  3,000               $ 5,000                          $5    
13,000                25,000                            4    
23,000                50,000                            3    
33,000                80,000                            2    
43,000                120,000                          1    

(a.) (15 points) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work.)

(b.) (15 points) What should be the production level if fixed costs rose to $50,000 per month? Explain.     

Leave a Reply

Your email address will not be published.