Question

17.) Suppose that Firm A’s total cost function were to change to TCa(qa)= 10qa+ 50, (so, a fixed cost of 50 has been added). Which of the following statements would then be TRUE?

a.This will decrease Firm A’s equilibrium level of output.

b.This will increase Firm B’s equilibrium level of output.

c.This will not affect either firm’s equilibrium level of output.

d.This will increase the price at which output is sold in this market.

18.) Suppose that Firm A’s total cost function were to change to TCa(qa)= 20qa (so, Firm A’s marginal cost has increased from 10/unit to 20/unit. Which of the following statements would then be TRUE?

a.This will decrease both Firm A’s and Firm B’s equilibrium levels of output.

b.This will decrease Firm A’s equilibrium level of output, but increase Firm B’s.

c.This will increase Firm A’s equilibrium level of output, but decrease Firm B’s.

d.This will increase both Firm A’s and Firm B’s equilibrium levels of output.

Answer 1

17) c is correct

Equilibrium level of output of produced using marginal analysis and fixed cost does not affect marginal cost. So equilibrium level of output remains the same.

18) b is correct

Higher marginal cost makes the firm A to increase price as well which leads to decrease in quantity demanded and increase the quantity demanded of firm B.