Posted by **John** on Tuesday, May 3, 2011 at 1:54pm.

Two price setting firms have the same price and marginal revenue functions but face different cost functions. These functions are provided below.

P = 165 - 0.025Q

MR = 165 - 0.05Q

Firm 1: TC = 4,000 + 15Q

Firm 2: TC = 3,000 + 22Q

a. Assuming that both firms are profit-maximizers, compute the output that each firm should produce.

b. Compute the price that each firm should charge at their respective output levels you computed above.

c. Compute the economic profit or loss of each firm at their respective output levels.

d. Suppose these firms operate in monopolistically competitive market. What will happen to economic profit or loss in the long run? Please briefly explain your answer.

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