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 Y 0 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
-In the figure above, the profit-maximizing quantity, in the absence of "menu costs," ________, with profit equal to ________.
A) remains Y0, J + K
B) remains Y0, H + K
C) remains Y0, G + H + J + K
D) falls to Y1, G + J
E) falls to Y1, F + G + J

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 Y 0 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 
-In the figure above, the profit-maximizing quantity, in the absence of "menu costs," ________, with profit equal to ________.
A) remains Y0, J + K 
B) remains Y0, H + K 
C) remains Y0, G + H + J + K 
D) falls to Y1, G + J 
E) falls to Y1, F + G + J

Quizplus · Accepted Answer

The profit-maximizing quantity is where marginal cost equals marginal revenue. In the absence of menu costs, the firm can adjust its price and quantity continuously to maximize profits. Therefore, the profit-maximizing quantity will remain at Y0, and the profit will be equal to J + K.

In Figure 17-4, Below, Initial Demand, Marginal Cost, and Marginal