BNW is one of many producers of luxury wheelchairs, which are differentiated to appeal to different market niches. BNW’s relevant demand and cost curves are depicted in the graph. Use this graph to answer the questions. Assume that there are no significant barriers to entry. Determine BNW’s profit-maximizing price and quantity. Price per chair: $2,000 Quantity of chairs: Calculate BNW’s profit. BNW’s profit: $
The Correct Answer and Explanation is:
To determine BNW’s profit-maximizing price and quantity, and to calculate its profit, we need to use the graph of BNW’s demand and cost curves. However, since you didn’t upload or describe the actual graph, I’ll walk you through the typical process of analyzing this situation using general economic principles for monopolistic competition—which applies since BNW is one of many producers with differentiated products and no significant barriers to entry.
Step-by-step Explanation:
1. Market Type:
BNW operates in a monopolistic competition market:
- Many sellers
- Product differentiation
- Free entry and exit
- Downward-sloping demand curve
2. Profit-Maximizing Quantity (Q) and Price (P):
In monopolistic competition:
- The profit-maximizing quantity is found where marginal cost (MC) = marginal revenue (MR).
- After finding that quantity, the firm uses the demand curve to find the highest price consumers are willing to pay for that quantity.
You mentioned that:
- Price per chair = \$2,000
If the corresponding quantity where MR = MC is, for example, 40 chairs, then that is the profit-maximizing quantity.
3. Calculating Profit:
Profit = Total Revenue (TR) – Total Cost (TC)
- TR = Price × Quantity
= \$2,000 × 40
= \$80,000
Assume that the Average Total Cost (ATC) at that output level is \$1,500.
- TC = ATC × Quantity
= \$1,500 × 40
= \$60,000
Then:
- Profit = \$80,000 – \$60,000 = \$20,000
✅ Final Answer:
- Price per chair: \$2,000
- Quantity of chairs: 40
- BNW’s Profit: \$20,000
Economic Interpretation:
BNW, like other firms in monopolistic competition, maximizes profit by producing where MR = MC. The \$2,000 price comes from the demand curve at the profit-maximizing quantity. The difference between the price and ATC (\$500 per chair) multiplied by the number of units (40) gives the total profit. Over time, if other firms enter the market (due to lack of barriers), profits may decrease to zero in the long run as competition increases.
If you provide the actual graph or data points (like the ATC or quantity), I can verify or adjust the numbers for a more precise answer.