A profit-maximizing firm finds that its marginal costs have risen by $10 per unit.In response to the increase in costs it will change its price and it will experience:
A) an increase in its total revenue.
B) a decrease in its total revenue.
C) no change in its total revenue.
D) It is not possible to predict the impact of the change on total revenue.

Question

Quizplus · Accepted Answer

If the firm increases its price to cover the increase in costs, it is likely that the quantity demanded will decrease, leading to a decrease in total revenue. Additionally, if the firm decides to maintain its original price despite the increase in costs, the profit margins will decrease, also leading to a decrease in total revenue. Therefore, the most likely outcome is a decrease in total revenue.

A Profit-Maximizing Firm Finds That Its Marginal Costs Have Risen