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) The correct answer is option C) because the firm chooses output such that marginal revenue equals the marginal cost. Therefore, the marginal cost is not taken into account.

18) The correct answer is option B because now the marginal cost will increase thus the Best response curve will shift downward for firm A thus reducing the output level for firm A.