Figure 16-4
-Refer to Figure 16-4.Consider the following two pricing strategies:
a.a fixed fee and a per-unit price equal to the monopoly price
B.a fixed fee and a per-unit price equal to the competitive price
The firm represented in the diagram earns a higher profit under strategy ________ and deadweight loss is eliminated under ________.
A) b; b
B) a; b
C) a; neither strategy
D) b; neither strategy

Question

Figure 16-4 
-Refer to Figure 16-4.Consider the following two pricing strategies: 
a.a fixed fee and a per-unit price equal to the monopoly price
B.a fixed fee and a per-unit price equal to the competitive price
The firm represented in the diagram earns a higher profit under strategy ________ and deadweight loss is eliminated under ________.
A) b; b 
B) a; b 
C) a; neither strategy 
D) b; neither strategy

Quizplus · Accepted Answer

Without access to Figure 16-4 and the specific details it contains, I cannot provide a definitive answer to the question. However, I can explain the general concepts that can help you determine the answer once you have the figure.
In economics, a monopoly price is typically set by a firm that is the sole provider of a good or service, and it is usually higher than the competitive price, which would prevail if there were many firms in the market. The monopoly price maximizes the firm's profits by charging a higher price but usually results in a lower quantity sold compared to the competitive market outcome.
A fixed fee is a one-time charge that consumers pay to access the product or service, while a per-unit price is the price consumers pay for each unit they purchase.
Here are the general implications of the two strategies:
a) A fixed fee and a per-unit price equal to the monopoly price:
- The firm may earn a high profit per unit sold, but the quantity sold may be lower due to the higher price.
- There is likely to be a deadweight loss because the high price prevents some mutually beneficial trades between the firm and consumers.
b) A fixed fee and a per-unit price equal to the competitive price:
- The firm may sell more units at the competitive price, but the profit per unit is lower.
- If the fixed fee is set appropriately, the firm can still capture a significant amount of consumer surplus, potentially earning a high overall profit.
- Deadweight loss is minimized or eliminated because the per-unit price is closer to the marginal cost of production, allowing for more efficient market outcomes.
Based on these general principles, the firm might earn a higher profit under strategy (a) if the fixed fee is large enough to compensate for the lower quantity sold. However, deadweight loss is typically eliminated under strategy (b) because the per-unit price is set at the competitive level, which is closer to the marginal cost and encourages a quantity of trade that is more socially optimal.
Therefore, the answer is likely to be:
A) b; b
But please note that this answer is based on general economic principles and the specific answer would depend on the details provided in Figure 16-4.

Figure 16-4 -Refer to Figure 16-4.Consider the Following Two Pricing Strategies