(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.
(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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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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