Scenario: Tobac Co

Multiple Choice

Scenario: Tobac Co. is a monopolist in the cigarette market in Nicotiana Republic, where the U.S. dollar is used as the official currency. The firm faces the demand curve shown below. The firm has a constant marginal cost of $2.00 per pack. The fixed cost of the firm is $50 million. To answer the questions below, it is useful to know that the equation of the (inverse) demand curve is P = 8 - 0.04Q, where Q is the quantity demanded (in millions of packs) and P is the price per pack (in $) . Also, you should draw in the marginal revenue curve.

-Refer to the scenario above.When the quantity sold goes up from 50 million to 100 million packs of cigarettes,the price effect on the firm's revenue is ________ and the quantity effect is ________.

A) -$100 million; $100 million
B) -$100 million; $200 million
C) $100 million; -$100 million
D) $100 million; -$200 million