Suppose That There Are Four Consumers Whose Maximum Willingnesses to Pay

question 17

Multiple Choice

Suppose that there are four consumers whose maximum willingnesses to pay for a good are $20, $15, $8, and $4, respectively. A firm can produce and sell the good at a constant marginal cost of $6. If the firm practiced perfect price discrimination, its total revenues would equal:

• A) $18.
• B) $24.
• C) $43.
• D) $47.

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Definitions:

Average Variable Cost

The average amount of variable cost per unit, calculated by dividing total variable costs by the quantity of output.

Profit-Maximizing

The approach taken by an enterprise to ascertain the optimal price and output quantity for the highest profit.

MR = MC

A principle in economics stating that profit maximization occurs when marginal revenue equals marginal cost.

Perfectly Competitive Market

An economic theory describing a market where no individual buyers or sellers have the power to influence the price of a product, and where the products offered are homogenous, with no barriers to entry or exit for businesses.