In Market A, a Firm with Market Power Faces an Inverse

question 147

Multiple Choice

In market A, a firm with market power faces an inverse demand curve of P = 10 - Q and a marginal cost that is constant at $2. In market B, a firm with market power faces an inverse demand curve of P = 8 - 0.75Q and a marginal cost of $2. Producer surplus in market A is _____ than in market B.

• A) $8 higher
• B) $4 higher
• C) $2 lower
• D) $1 lower

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Definitions:

UCC

Stands for the Uniform Commercial Code, a set of laws that provide legal rules and regulations governing commercial or business transactions and agreements in the United States.

Assignment

The act of moving ownership, possessions, or duties from one individual to another.

Bilateral Contract

A contractual agreement involving two parties where each promises to perform an act in exchange for the other's act.

Obligor

A person or entity legally obligated to provide a payment or service to another under the terms of a contract.