Question

37. Suppose there is a competitive market for e-bikes that is in the long-run. If firms in the
e-bike market are not identical, then an increase in cost will
A) shift marginal cost to the right.
B) push the most inefficient firms out of the market.
C) push the most efficient firms out of the market.
D) There is not enough information to answer.

38. Suppose the company E-bikes R US is the sole supplier of e-bikes and produces 100
e-bikes. E-Bikes R US faces MC = 15 and MR = 17. If E-bikes R US produces 101 e-bikes,
then MC = 16 and MR = 15. To maximize profits, E-Bikes R US
A) should produce 100 units.
B) should produce 101 units.
C) The firm cannot maximize profits.
D) The firm is not a monopoly.

39. Suppose the company E-bikes R US is the sole supplier of e-bikes and faces the following
inverse demand: p = 100 - 2Q. Profit maximization
A) is achieved when 25 units are produced.
B) is achieved by setting price equal to 25.
C) is achieved only by shutting down in the short run.
D) cannot be determined solely from the information provided.

Answer 1

37. The correct answer is: B)

Reason: Since in a perfectly competitive market firms are price takers and any individual firm can't influence the market price. So, if there is an increase in cost, the ineffecient firms would start incurring losses (as price can't be changed by them) and thus they will have to leave the market

38. The correct answer is: A)

Reason: As by increasing output, the MC becomes larger than the MR i.e losses increase and thus the firm should produce 100 units only.

39. The correct answer is: D)

Reason: For price or quantity determination, there is additional requirement of the cost functions of the firm along with the demand curve.

At equilibrium, the MR = MC.