A New Firm Enters a Market Which Is Initially Serviced

question 98

Multiple Choice

A new firm enters a market which is initially serviced by a Cournot duopoly charging a price of $20.What will the new market price be should the three firms co-exist after the entry?

• A)$20.
• B)below $20.
• C)above $20.
• D)none of the statements associated with this question are correct.

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Definitions:

Allocative Efficiency

A state of the economy in which production represents consumer preferences; in other words, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

Long-Run

A period of time in economics during which all factors of production and costs are variable, allowing for complete adjustment to changes.

Average Total Cost

The sum of average variable costs and average fixed costs, or simply the total cost divided by the quantity of output produced.

Constant-Cost Industry

An industry in which the entry and exit of firms have no effect on the prices firms in the industry must pay for resources and thus no effect on production costs.