In Figure 17-4, below, initial demand, marginal cost, and marginal revenue curves (none of them shown) caused the firm to produce the profit-maximizing quantity Y 0 at a price of P0. Now the demand and marginal cost curves have moved to those shown, with the marginal revenue curve running through point L.
Figure 17-4
-If the firm in the figure above maintains its set price of P0, rather than dropping price to P1, the loss of consumer surplus due to this decision is
A) J + K.
B) K - G.
C) G + H.
D) H + K.

Question

In Figure 17-4, below, initial demand, marginal cost, and marginal revenue curves (none of them shown) caused the firm to produce the profit-maximizing quantity Y 0 at a price of P0. Now the demand and marginal cost curves have moved to those shown, with the marginal revenue curve running through point L.
Figure 17-4 
-If the firm in the figure above maintains its set price of P0, rather than dropping price to P1, the loss of consumer surplus due to this decision is
A) J + K. 
B) K - G. 
C) G + H. 
D) H + K.

Quizplus · Accepted Answer

The loss of consumer surplus is represented by the area between the demand curve and the price line that consumers are willing to pay but do not due to the higher price. This area is G + H.

In Figure 17-4, Below, Initial Demand, Marginal Cost, and Marginal