Figure 16-5

-Refer to Figure 16-5.Consider the following two pricing strategies:
A.a fixed fee and a per-unit price equal to the monopoly price
B.a fixed fee and a per-unit price equal to the competitive price
The firm represented in the diagram earns a higher profit under strategy ________ and deadweight loss is eliminated under ________.
A)b; b
B)a; b
C)a; neither strategy
D)b; neither strategy

Question

Figure 16-5
 
-Refer to Figure 16-5.Consider the following two pricing strategies:
A.a fixed fee and a per-unit price equal to the monopoly price
B.a fixed fee and a per-unit price equal to the competitive price
The firm represented in the diagram earns a higher profit under strategy ________ and deadweight loss is eliminated under ________.
A)b; b 
B)a; b 
C)a; neither strategy 
D)b; neither strategy

Quizplus · Accepted Answer

Strategy A results in a higher profit for the firm because the fixed fee captures some of the consumer surplus that would otherwise be lost under strategy B. Strategy B eliminates deadweight loss because the per-unit price is set equal to the competitive price, which is the efficient price.

Figure 16-5 -Refer to Figure 16-5.Consider the Following Two Pricing Strategies