A Decrease in Firm 2's Marginal Cost Will Cause

question 49

Multiple Choice

A decrease in firm 2's marginal cost will cause:

• A) an upward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity.
• B) a downward shift in firm 1's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity.
• C) an upward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a lower quantity and firm 2 is producing a higher quantity.
• D) a downward shift in firm 2's reaction function, resulting in a new Cournot equilibrium where firm 1 is producing a higher quantity and firm 2 is producing a lower quantity.

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Definitions:

Management

The process of planning, organizing, leading, and controlling resources to achieve organizational goals.

Profits

The financial gain realized when the revenue generated from business activities exceeds the expenses, taxes, and costs involved in maintaining the operation.

Sole Proprietorship

A business owned and operated by a single individual, with no legal distinction between the owner and the business entity.

Legal Formalities

The required procedures or steps mandated by law for ensuring that legal acts or documents are valid and enforceable.