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:

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income.

Bankruptcy Costs

Expenses and financial losses associated with undergoing bankruptcy, including legal fees, asset liquidation costs, and potential loss of business.

Optimal Capital Structure

The best mix of debt, equity, and other financial instruments that maximizes a company's market value while minimizing its cost of capital.

Modigliani And Miller Model

A financial theory proposing that the market value of a company is determined by its earning power and the risk of its underlying assets, and is independent of its capital structure.