The market structure of home video gaming systems is best characterized by monopolistic competition. Quasar Entertainment is one of the producers in this market. The inverse demand for Quasar systems is:
P = 500 - 9.75Q
Quasar's cost function is: C(Q) = 0.25Q2 + 6. Determine Quasar's profit maximizing level of output and the price charged to customers. Is the market in a long-run equilibrium?
Choosing Q where MR = MC:
500 - 19.5Q = .5Q
Q = 25
P = 256.25
Profits are 6244, indicating that this is not a LR equilibrium ? firms will enter the market until profits are 0.
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