Figure 14.2The US Market for Imported Toyotas

-In Figure 14.2,D represents the US demand curve for Toyotas and MC0 represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the US market.A shift in the marginal cost curve from MC0 to MC2 leads to

Question

Figure 14.2The US Market for Imported Toyotas
 
-In Figure 14.2,D represents the US demand curve for Toyotas and MC0 represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the US market.A shift in the marginal cost curve from MC0 to MC2 leads to

Quizplus · Accepted Answer

When the marginal cost curve shifts from MC0 to MC2, the monopolist will adjust its price to MC2 to maximize profit. Due to the elasticity of demand, the monopolist cannot fully pass on the increase in cost to consumers, resulting in a partial pass-through of the depreciation of the dollar. In other words, the price increase will be less than the increase in cost, resulting in a narrower profit margin for the monopolist. Therefore, the best choice is C.