Question

There are four consumers willing to pay the following amounts for an electric car. Consumer 1: Consumer 2: Consumer 3: Consumer 4 60,000 50,000 90,000 S30,000 There are four firms that can produce electric cars. Each can produce one car at the following costs Firm C $40,000 Firm A: Firm B: 580,000 Firm D: 30,000 $50,000 Each firm can produce at most one car. Suppose the market for electric cars is competitive Why is the equilibrium price in this market $50,000? O A. At this price, the quantity demanded (three cars) equals the quantity supplied (three cars) O B. At this price, three consumers are willing to buy an electric car and three firms are willing to sell an electric car C. At $50,000, three consumers have reservation values equal to or above $50,000 and three firms have reservation values equal to or below $50,000 O D. All of the above.

Answer 1

Answer: Option d. All of the above.

Explanation: When the price is $50000, three consumers (except consumer 4) are willing to buy an electric car because their ability to pay is equal to or greater than the price of an electric car. At this price, three of the firms (except firm B) are capable of selling the product because the price they receive is greater than or equal to the cost incurred in production. Thus, demand of electric car equals supply of electric cars at $50000.