Question

When a business has more than one price it must avoid ________ among people who are paying the ________ price.

A) resentment; lower

B) deregulation; lower

C) deregulation; higher

D) jealousy; higher

E) resentment; higher

A price-making business must follow the one-price rule and faces the following demand schedule: at prices of $7, $6, $5, $4, and $3, quantity demanded is 300, 400, 500, 600, and 700 units respectively. If the business's marginal cost is constant at $250, it maximizes profits by producing

A) 700 units and charging a price of $3.

B) 600 units and charging a price of $4.

C) 500 units and charging a price of $5.

D) 400 units and charging a price of $6.

E) 300 units and charging a price of $7.

Increasing marginal costs can come from

A) diminishing returns.

B) businesses operating near capacity.

C) inputs that are not equally productive in all activities.

D) paying overtime wages to employees.

E) all of the above.

Answer 1

( 1 ) The correct answer is ( E ).

When a business has more than one price it must avoid resentment among people who are paying the higher price.

It is quite obvious that those who are paying higher price for same product would feel resentment against the company for discriminating them.

( 2 ) The correct answer is ( C) 500 units and charging a price of $5.

As it is given that the marginal cost is constant at $250, the firm would maximize profit when the revenue is maximized.

By multiplying price and the units, we find 500 units at $5 to give highest revenue which means it is the profit - maximizing level.

( 3 ) The correct answer is ( E ).

Increasing marginal costs can come from ( E ). All of the above.

A firm may get increasing marginal cost when a factor is giving diminishing returns. Those businesses that are operating near capacity if try to produce more output, may get diminishing returns as most of the factors as well as fixed capital is really fully utilized. The other two options may also induce increasing marginal cost for a firm.