This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase.
Suppose this graph describes a town in which the only way to gather any information about the good is through Consumer Reports.If the subscription price of Consumer Reports increases

Question

This graph illustrates the marginal costs and marginal benefits of acquiring information before making a major purchase. 
Suppose this graph describes a town in which the only way to gather any information about the good is through Consumer Reports.If the subscription price of Consumer Reports increases

Quizplus · Accepted Answer

If the subscription price of Consumer Reports increases, it will increase the cost of acquiring information, which will cause the marginal cost curve to shift from MC₂ to MC. The marginal benefit curve will remain the same as the cost of the good has not changed. The optimal level of information acquisition will decrease, and the new equilibrium point will be at a lower level of information acquisition. Therefore, the best choice is B.

This Graph Illustrates the Marginal Costs and Marginal Benefits of Acquiring