The following table depicts the prices and total costs faced by a local used bookstore.
The bookstore competes with a number of similar stores and therefore operates in a monopolistically competitive marketplace.
Total product (TP) Price per Book Total Costs
0 $5.00 $1.50
1 4.75 4.00
2 4.50 6.00
3 4.25 7.50
4 4.00 9.50
5 3.75 12.50
6 3.50 16.00
7 3.00 21.00
8 2.50 28.00
A. Calculate the store's total revenue , marginal revenue, average total cost, and marginal cost at each total product (TP)level.
B. What is the profit-maximizing level of total product for the bookstore? How much profit is being earned at this total product level?
C. Is this firm a purely competitive firm or a monopolistically competitive firm? Explain.
D. Is this firm operating in the short- run or Long -run? Explain.
E. At each total product level, state whether the demand is elastic, unit elastic, or inelastic.
F. How does the elasticity value relate to the marginal revenue values?
G. would the firm produce when the demand is elastic? Explain why or why not.
H. Would the firm produce when the demand is unit elastic ? Explain why or why not.
I. Would the firm produce when the demand is inelastic ? Explain why or why not.
J. Graphically represent this short- run situation by plotting demand, marginal revenue, marginal cost, and average total cost on the same graph. On your graph, make sure to show the profit maximizing quantity and price as well as the profit or loss area.
K. Given your results from parts a and b , explain what two phenomena ( in terms of demand and costs) will happen to this bookstore in the long run.