Suppose a firm has market power and faces a downward sloping demand curve for it

Question

Suppose a firm has market power and faces a downward sloping demand curve for its product, and its marginal cost curve is upward sloping. If the firm reduces its price, then:

consumer and producer surplus must increase.

consumer surplus increases, producer surplus may increase or decrease.

consumer surplus increases, producer surplus must decline.

consumer and producer surplus must decline.

consumer and producer surplus must increase.

consumer surplus increases, producer surplus may increase or decrease.

consumer surplus increases, producer surplus must decline.

consumer and producer surplus must decline.

Explanation / Answer

consumer surplus increases, producer surplus must decline.

A decrease in price will benefit consumer and consumer surplus will increase while producer surplus will fall.

consumer surplus increases, producer surplus must decline.

A decrease in price will benefit consumer and consumer surplus will increase while producer surplus will fall.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.