(a) Assume the firm produces 16 units. Will the firm's economic profit be positive, negative, or zero? Explain. (b) If the firm charges $36, should this firm increase its price, decrease its price, or keep the price at $36 in order to maximize its total revenue? Explain. (c) If the firm increases its price from $36 to $42, does the deadweight loss increase, decrease, or remain unchanged? Explain.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Use the following graph to answer parts (a)-(e). Prices and costs are in dollars.
60
MC
ATC
54
48
42
36
30
24
18
12
6.
D
36 40
16 20
MR
8.
12
24 28 32
Quantity
The graph above shows the demand (D) , marginal revenue (MR), marginal cost (MC), and average
total cost (ATC) curves for one of many profit-maximizing firms operating in the short run in an
industry in which there are no barriers to entry. Each firm sells a similar but not identical product.
(a) Assume the firm produces 16 units. Will the firm's economic profit be positive, negative, or zero?
Explain.
(b) If the firm charges $36, should this firm increase its price, decrease its price, or keep the price at
$36 in order to maximize its total revenue? Explain.
(c) If the firm increases its price from $36 to $42, does the deadweight loss increase, decrease, or
remain unchanged? Explain.
(d) Assuming the firm produces a quantity greater than zero, identify the firm's profit-maximizing
quantity and price, and explain how you determined each.
(e) Calculate the total cost of producing the profit-maximizing quantity identified in part (c). ShoW
your work.
Price, Cost
4.
Transcribed Image Text:Use the following graph to answer parts (a)-(e). Prices and costs are in dollars. 60 MC ATC 54 48 42 36 30 24 18 12 6. D 36 40 16 20 MR 8. 12 24 28 32 Quantity The graph above shows the demand (D) , marginal revenue (MR), marginal cost (MC), and average total cost (ATC) curves for one of many profit-maximizing firms operating in the short run in an industry in which there are no barriers to entry. Each firm sells a similar but not identical product. (a) Assume the firm produces 16 units. Will the firm's economic profit be positive, negative, or zero? Explain. (b) If the firm charges $36, should this firm increase its price, decrease its price, or keep the price at $36 in order to maximize its total revenue? Explain. (c) If the firm increases its price from $36 to $42, does the deadweight loss increase, decrease, or remain unchanged? Explain. (d) Assuming the firm produces a quantity greater than zero, identify the firm's profit-maximizing quantity and price, and explain how you determined each. (e) Calculate the total cost of producing the profit-maximizing quantity identified in part (c). ShoW your work. Price, Cost 4.
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