Multiple Choice
The figure given below represents a firm in a market characterized by many buyers and one seller.MC is the initial marginal cost of the seller.MC' denotes the marginal cost inclusive of the $1 transaction cost.On the other hand, buyers incur a transaction cost worth $2 represented by the vertical distance between D and D'.MR and MR' represent the marginal revenue curve corresponding to the demand curves D and D' respectively.
-Refer to Figure.Determine the profit maximizing price and output when MC' is the marginal cost of the seller and the transaction cost incurred by the buyer is $2.
A) Output = 2.5 units and price = $8.25
B) Output = 2.5 units and price = $6.5
C) Output = 3 units and price = $9
D) Output = 3 units and price = $6.5
Correct Answer:
Verified
Correct Answer:
Verified
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