Aruna owns Pottery Plus, a small firm that produces terra cotta pots for sale in the Edmonton area. The graph above represents Aruna’s situation. Pottery Plus has two rival firms. Aruna is convinced that she dare not raise her price because her rivals will not raise their prices, and she dare not decrease her price because her rivals will simply match her lower price. a. What price does Aruna charge? $ b. What quantity does she produce? units produced c. If her marginal costs are MC1 is she producing the optimal output? d. If her marginal costs increase to MC2 will she reduce her output?
Aruna owns Pottery Plus, a small firm that produces terra cotta pots for sale in the Edmonton area. The graph above represents Aruna’s situation. Pottery Plus has two rival firms. Aruna is convinced that she dare not raise her price because her rivals will not raise their prices, and she dare not decrease her price because her rivals will simply match her lower price. a. What price does Aruna charge? $ b. What quantity does she produce? units produced c. If her marginal costs are MC1 is she producing the optimal output? d. If her marginal costs increase to MC2 will she reduce her output?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Aruna owns Pottery Plus, a small firm that produces terra cotta pots for sale in the Edmonton area.
The graph above represents Aruna’s situation. Pottery Plus has two rival firms. Aruna is convinced that she dare not raise her
a. What price does Aruna charge?
$
b. What quantity does she produce?
units produced
c. If her marginal costs are MC1 is she producing the optimal output?
d. If her marginal costs increase to MC2 will she reduce her output?
Transcribed Image Text:20.0
17.5
D
15.0
PMC2
12.5
10.0
*MC,
7.5
5.0
2.5
MR!
2.5 5.0
7.5 10.0 12.5 15.0 17.5
Quantity per period
Price, costs
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