The figure given below represents a firm in a market characterized by many buyers and one seller.MC represents the marginal cost, MR the marginal revenue, and D the demand curve of a firm.The firm is initially in equilibrium producing 6 units of output at a price of $10 per unit.

-Refer to Figure .Suppose the adoption of a new cost saving technology lowers marginal cost by $2 although the buyer's valuation remains unchanged.This allows the firm to produce 8 units of output at a price of $8 per unit.The profit earned by the firm will:
A)increase by $10.
B)decrease by $5.
C)remain unchanged.
D)increase by $5.

Question

The figure given below represents a firm in a market characterized by many buyers and one seller.MC represents the marginal cost, MR the marginal revenue, and D the demand curve of a firm.The firm is initially in equilibrium producing 6 units of output at a price of $10 per unit.

-Refer to Figure .Suppose the adoption of a new cost saving technology lowers marginal cost by $2 although the buyer's valuation remains unchanged.This allows the firm to produce 8 units of output at a price of $8 per unit.The profit earned by the firm will:
A)increase by $10. 
B)decrease by $5. 
C)remain unchanged. 
D)increase by $5.

Quizplus · Accepted Answer

The decrease in marginal cost by $2 per unit for 8 units results in a cost saving of $16. Since the price and quantity remain the same, the profit increases by the cost savings, which is $16.

The Figure Given Below Represents a Firm in a Market