Asked by Maria Rodarte on May 31, 2024
Verified
Mr.Porter sells 10 bottles of champagne per week at $50 per bottle.He can sell 11 bottles per week if he lowers the price to $45 per bottle.The quantity and the price effects on total revenue would be,respectively,an increase of _____ and a decrease of _____.
A) $450;$500
B) $495;$550
C) $45;$5
D) $45;$50
Price Effects
Refers to the impact of price changes on the consumer's choice and the quantity demanded of goods and services.
Quantity Effects
The changes in the amount of goods or services produced or consumed in response to changes in price or other factors.
Total Revenue
The overall financial income a company acquires from its commercial activities, including the sale of goods and provision of services, within a certain period.
- Perceive the ties between demand, pricing, and marginal revenue within the confines of a monopoly.
- Scrutinize the mechanisms monopolies utilize to establish pricing and output decisions for peak profit realization.
Verified Answer
(11-10) x $50 = $50
This means that by decreasing the price and selling one more bottle, the total revenue increases by $50.
To find out the price effect on total revenue, we need to calculate the change in revenue due to the price decrease. The price effect is:
10 x ($45-$50) = -$50
This means that by decreasing the price, the total revenue decreases by $50.
Therefore, the total effects are an increase of $50 in quantity and a decrease of $50 in price. The net effect is zero.
However, the question asks for the individual effects, so the correct answer is D) $45 increase in quantity and $50 decrease in price.
Learning Objectives
- Perceive the ties between demand, pricing, and marginal revenue within the confines of a monopoly.
- Scrutinize the mechanisms monopolies utilize to establish pricing and output decisions for peak profit realization.
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