Exhibit 22-9

Refer to Exhibit 22-9. Following an increase in market demand from D₁ to D₂, the firm's profits in the short run will

Question

Exhibit 22-9 Refer to Exhibit 22-9. Following an increase in market demand from D₁ to D₂, the firm's profits in the short run will

Quizplus · Accepted Answer

In the short run, the firm is operating at output Q1 where marginal cost (MC) equals marginal revenue (MR), and the corresponding price (P) is P₁. When market demand increases to D₂, the price increases to P₂. However, the firm cannot increase output beyond Q1 in the short run due to fixed inputs. Therefore, the firm's profit increases from the area of the rectangle P₁ times q₁ to the area of the rectangle P₂ times q₂, which is less than (P₂ - P₁) times q₂. Thus, the best choice is C.

Exhibit 22-9 ​ Refer to Exhibit 22-9. Following an Increase in Market Demand

Exhibit 22-9 Refer to Exhibit 22-9. Following an Increase in Market Demand