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Question - Competition: Pure, Monopolistic, Monopoly - You are the manager of GetMoney Inc. and you produce cardboard boxes. Suppose that you hired a consultant for your company to estimate the demand for your cardboard boxes. Your consultant determines that you are operating your business in a monopolistically competitive environment. You collect data on the price and quantity of boxes sold and send it to your consultant, who then estimates the inverse demand equation as P= 7-(1.5)*Q. Please also assume that you have a fixed cost of $1 and that the variable cost as estimated by your consultant is V(Q) = 3Q + (0.5)∗ 2.
a) What is the quantity that maximizes profits based upon the above information? What are the corresponding maximum profits that you can earn? (Please use graphs to support your answer.)
b) Considering your answer to part a, would you conclude that the profits that you earned were made over the short-run or long-run? What happens in the long run to your profits in this type of market structure?
c) Considering your answer to part b, what would you expect to happen to your profits if you operated your business in a monopoly? Why or why not?
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