Refer to Figure 12-9. At price P3, the firm would A) lose an ...

[ss2343]

Refer to Figure 12-9. At price P3, the firm would
 
  A) lose an amount less than fixed cost. B) lose an amount more than fixed cost.
  C) break even. D) lose an amount equal to its fixed cost.

Question 2

Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair, even if they are worse off as a result.
 
  How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

[ebonylittles]

Answer to Question 1

C

Answer to Question 2

If the firm chooses to raise prices, consumers will consider this price increase unfair and might choose to buy elsewhere. This loss of consumer goodwill could lead to lower profits in the long run. It is rational for firms to forgo raising prices in the short run to keep customers happy. This can lead to increased profits in the long run.