An Increase in Firm 2's Marginal Cost Will Cause

question 93

Multiple Choice

An increase in firm 2's marginal cost will cause:

• A) 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.
• B) 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.
• C) 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.
• D) 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.

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Definitions:

Plantwide Predetermined Rate

A single overhead absorption rate calculated for an entire factory, used to allocate overhead costs to products.

Machine-Hours

A measure of the amount of time a machine is operated, used in the calculation of manufacturing costs and allocation.

Manufacturing Cost

The total cost incurred by a company to produce a specific quantity of a product, including materials, labor, and overhead.

Departmental Predetermined Rates

Specific predetermined overhead rates calculated for different departments within a company, to more accurately allocate costs.