In Figure 17-4,below,initial demand,marginal cost,and marginal revenue curves (none of them shown)caused the firm to produce the profit-maximizing quantity Y₀ at a price of P₀.Now the demand and marginal cost curves have moved to those shown,with the marginal revenue curve running through point L.
Figure 17-4

-If the firm in Figure 17-4 above maintains its set price of P₀,rather than dropping price to P₁,the loss of consumer surplus due to this decision is
A)J + K.
B)K - G.
C)G + H.
D)H + K.

Question

In Figure 17-4,below,initial demand,marginal cost,and marginal revenue curves (none of them shown)caused the firm to produce the profit-maximizing quantity Y₀ at a price of P₀.Now the demand and marginal cost curves have moved to those shown,with the marginal revenue curve running through point L.
Figure 17-4
 
-If the firm in Figure 17-4 above maintains its set price of P₀,rather than dropping price to P₁,the loss of consumer surplus due to this decision is
A)J + K. 
B)K - G. 
C)G + H. 
D)H + K.

Quizplus · Accepted Answer

The loss of consumer surplus is represented by the area between the demand curve and the price line from P₀ to P₁, which is the sum of areas G and H. Therefore, the correct answer is (C) G + H. J and K represent producer surplus, which is not affected by the decision to maintain the price at P₀ instead of lowering it to P₁.

In Figure 17-4,below,initial Demand,marginal Cost,and Marginal Revenue Curves (None of Them