Asked by Gaurab Dhakal on Jul 08, 2024
Verified
(Table: Demand for Lenny's Coffee) Use Table: Demand for Lenny's Coffee.Lenny's Café is the only source of coffee for hundreds of miles in any direction.If Lenny's marginal cost of selling coffee is a constant $2 and he has no fixed costs,and the government forces Lenny to charge a price that eliminates deadweight loss,Lenny will charge _____ per cup and sell _____ cups.
A) $0;10
B) $2;8
C) $4;6
D) $5;5
Deadweight Loss
The reduction in economic productivity that happens when a good or service does not reach or cannot reach its market equilibrium.
Marginal Cost
The cost of producing one more unit of a good or service.
Government
Government refers to the group or system of individuals governing an organized community, often a state, and it is responsible for creating and enforcing laws, policies, and regulations.
- Familiarize yourself with the idea of profit maximization in monopolies and its deviation from the norm in perfect competition.
- Ascertain and evaluate the marginal cost, marginal revenue, quantity effect, and price effect in environments characterized by a monopoly.
Verified Answer
FU
Frank UriasJul 12, 2024
Final Answer :
B
Explanation :
To eliminate deadweight loss and maximize efficiency, Lenny should set the price equal to the marginal cost, which is $2. At this price, according to the demand table (not provided, but based on the information), he would sell 8 cups, aligning with the principles of economic efficiency where price equals marginal cost.
Learning Objectives
- Familiarize yourself with the idea of profit maximization in monopolies and its deviation from the norm in perfect competition.
- Ascertain and evaluate the marginal cost, marginal revenue, quantity effect, and price effect in environments characterized by a monopoly.