Part 1The graph shows the situation facing the publisher of the only newspaper containing local news in an isolated community. Draw only the objects specified in the exercise. 0100200300400500020406080100Quantity (newspapers per day)Price and cost (cents per newspaper)73269Upper DDMCMC TRTR MRMR Edit coordinates interactive graphDraw the marginal revenue curve. Label it MR.Draw a point at the profit-maximizing quantity and price. Draw a shape that shows the firm's total revenue. Label it TR. Click toenlargegraphPart 2At the price charged, is the demand for this newspaper elastic or inelastic? Why?Demand for the newspaper is [input] elastic Your answer is correct. You answered elastic. at the price charged.Part 3The publisher will not produce a quantity at which the market demand for newspapers is inelastic because when demand is inelastic the publisher can _______ the quantity produced, which _______. A. increase; increases total revenue, decreases total cost, and increases economic profit B. decrease; increases total revenue, decreases total cost, and increases economic profit C. increase; increases total revenue and increases total cost, but the increase in total cost is less than the increase in total revenue D. decrease; decreases total revenue and decreases total cost, but the decrease in total cost is less than the decrease in total revenue

Question

Part 1The graph shows the situation facing the publisher of the only newspaper containing local news in an isolated community.​>>> Draw only the objects specified in the exercise. 0100200300400500020406080100Quantity (newspapers per day)Price and cost (cents per newspaper)73269Upper DDMCMC TRTR MRMR Edit coordinates interactive graphDraw the marginal revenue curve. Label it MR.Draw a point at the​ profit-maximizing quantity and price. Draw a shape that shows the​ firm's total revenue. Label it TR. Click toenlargegraphPart 2At the price​ charged, is the demand for this newspaper elastic or​ inelastic? Why?Demand for the newspaper is [input] elastic Your answer is correct. You answered elastic. at the price charged.Part 3The publisher will not produce a quantity at which the market demand for newspapers is inelastic because when demand is inelastic the publisher can​ _______ the quantity​ produced, which​ _______. A. ​increase; increases total​ revenue, decreases total​ cost, and increases economic profit B. ​decrease; increases total​ revenue, decreases total​ cost, and increases economic profit C. ​increase; increases total revenue and increases total​ cost, but the increase in total cost is less than the increase in total revenue D. ​decrease; decreases total revenue and decreases total​ cost, but the decrease in total cost is less than the decrease in total revenue

BlackTom AI · Accepted Answer

First, let's restate the core question and the answer choices to ensure clarity for analysis.
Question context: The publisher will not produce a quantity at which the market demand for newspapers is inelastic because when demand is inelastic the publisher can ______ the quantity produced, which _______.
Options:
A. increase; increases total revenue, decreases total cost, and increases economic profit
B. decrease; increases total revenue, decreases total cost, and increases economic profit
C. increase; increases total revenue and increases total cost, but the increase in total cost is less than the increase in total revenue
D. decrease; decreases total revenue and decreases total cost, but the decrease in total cost is less than the decrease in total revenue

Now, evaluate each option in turn, keeping the economic intuition about inelastic demand in mind.
Option A: increase the quantity produced. When demand is inelastic (elasticity magnitude less than 1), raising quantity typically lowers the price significantly enough that total revenue falls rather than rises. Although costs may change, the net effect of increasing quantity in an inelastic region is unlikely to increase total revenue, and it does not align with the standard insight that producers would prefer higher prices when demand is inelastic. Therefore this option is inconsistent with the behavior of inelastic demand and is incorrect.
Option B: decrease the quantity produced. Here, lowering quantity often raises the price. In an inelastic region, price increases lead to a proportionally larger increase in revenue than the proportional decrease in quantity, so total revenue tends to rise. Variable costs will typically decline with producing less, so total cost decreases. If revenue rises while cost falls, economic profit would increase. This neatly matches the classic motive in the inelastic portion of the demand curve where a firm can raise price and reduce output to boost profitability. This option is consistent with the theory and is a strong candidate for the correct answer.
Option C: increase the quantity, with total revenue increasing but total cost increasing as well, though the cost increase is smaller than the revenue increase. While it’s true that revenue can rise with an increase in quantity in some contexts, the statement contradicts the premise that demand is inelastic in this scenario: expanding output typically lowers price enough that total revenue might not increase, or could even fall, rather than reliably increasing. Moreover, saying total cost increases but by less than revenue is a specific dynamic that depends on fixed and marginal cost structures; it does not capture the general implication of inelastic demand driving profit via lower output and higher price. This makes C questionable and generally inconsistent with the standard inelastic-demand logic.
Option D: decrease the quantity produced, with both total revenue and total cost decreasing, but the decrease in cost is smaller than the decrease in revenue. If you decrease quantity in an inelastic region, price rises, which tends to push total revenue up rather than down. The proposed result that total revenue would decrease with a quantity cut contradicts the typical inelastic-demand effect where revenue is maintained or increased when output falls and price rises. This makes D incorrect.
Summarizing the assessments: A mispredicts the revenue effect of increasing output in inelastic demand; C proposes a revenue increase with higher output, which is not generally aligned with inelastic demand dynamics; D predicts revenue declines with output cuts, contrary to the inelastic pricing effect; B aligns with the standard result that inelastic demand allows a firm to cut quantity, raise price, increase total revenue, and reduce costs, thereby boosting profit.
Therefore, Option B is the consistent choice given the logic of inelastic demand and its impact on total revenue, total cost, and economic profit.

Homework:ch13_homework

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