This question examines the monopolistically competitive market for hamburgers. You will use the demand curve for an individual firm’s product variant to identify the maximum willingness to pay by consumers for different quantities of that firm’s hamburger and the marginal revenue earned from each unit. Additionally, you will identify how many hamburgers the firm should produce and the price it should charge.
Hamburgers are produced and sold by a small number of firms that each produce slightly different hamburgers. One of these firms, Harry’s Hamburgers, faces demand for its variant characterized by the function:
P = 18 − 3Q
where Q is the number of hamburgers that Harry’s Hamburgers produces and sells and P represents consumers’ maximum willingness to pay for a particular quantity. The table below will help you identify and organize different relationships between quantity, price, total revenue, and marginal revenue.
Task 1: In the table below, identify the price, marginal revenue, and total revenue associated with each quantity of hamburgers that Harry’s Hamburgers can produce.
Quantity(burgers)Price(dollars)Total Revenue (dollars)Marginal Revenue(dollars) 0$ 0—– 1$15 2$12 3 27 4 6 5 6 0 0
Task 2: Suppose that Harry’s Hamburgers’ marginal cost of producing a hamburger is MC = $3 per hamburger. How many hamburgers should the firm produce and sell?
Task 3: Suppose that Harry’s Hamburgers’ marginal cost of producing a hamburger is MC = $3 per hamburger. What (per-hamburger) price should the firm charge?