Brand X is one of many firms in a competitive industry where each firm has a constant marginal cost of 2 dollars per unit of output. If marginal cost for Brand X rises to 4 dollars per unit and marginal costs of all other firms in the industry stay constant, by how much does the price in the industry increase?
a. 2 dollars
b. 1 dollar
c. 0 dollar
d. 2/n, where n is the number of firms in the industry
e. None of the above.
Answer
c. 0 dollar
the single firm in a competitive market can not influence the market price as the market price is calculated by market demand and supply equilibrium. The firm will exit the industry in the long run because at this cost the firm cannot operate in the industry.
Brand X is one of many firms in a competitive industry where each firm has a...