Calculate the monopolistically competitive equilibrium? Part -1?

Question

2.Monopolistically Competitive Equilibrium. Silas Foundry, Inc., is a medium-sized foundry specializing in heavy duty price for industrial use. Silas demand and cost information are as follows:

P = $4,500 – Q (Demand)

MR = $4,500 - $2Q (Marginal Revenue)

TC = $150,000 + $400Q (Total Cost)

MC = $400 (Marginal Cost)

**where Q is output (thousand feet of heavy gauge pipe), P is price, MR is marginal revenue, TC is total costs and MC is marginal cost. Both cost functions include a normal return of 12% on capital investment.

A.Determine the profit-maximizing price/output combination and profit level.

B.Compute price, output and profits under the assumption that the Silas seeks to maximize revenue. Assuming that Silas operates in a monopolistically competitive industry, is the industry in equilibrium?

Answer 1

A:

MR=MC

400=4'500-2Q

Q=2'050

P=4'500-2'050=2'450

TR=2450*2'050= 5'022'500

TC=150'000+400*2'050=970'000

Profit=TR-TC=5'022'500 - 970'000 = 4'052'500

B:

TR(Max) if MR=0

0=4'500-2Q

Q=2'250

P=2'250

TR=5'062'500

TC=150'000+ 400*2'250= 1'050'000

Profit=5'062'500-1'050'000 = 4'011'500

No- it's not in best possible equilibrium.

Added:

P.S. I have accidentaly calculated for pure monopoly case - hold-on a bit - after a dinner I will do for monopolistic competition.