Scenario: the Figure Below Shows the Supply and the Demand

question 128

Multiple Choice

Scenario: The figure below shows the supply and the demand for a good (left) and the cost curves of an individual firm in this market (right) . Initially, all firms in this market have identical cost curves MC₁ and ATC₁, and the market is in equilibrium at point A. Subsequently, a new production technology has been developed for this product. Some of the existing firms as well as some new firms have adopted the new technology, and their cost curves are MC₂ and ATC₂.

-Refer to the figure above.Suppose that,due to firm entries,the supply curve has shifted so that the equilibrium price falls to $2.00.Then ________.

• A) only the firms with new technology enter the market
• B) only the firms with old technology enter the market
• C) all firms, with old and new technologies, enter the market
• D) existing firms (with old technology) exit the market

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Definitions:

Market-clearing Price

The price at which the quantity demanded by buyers equals the quantity supplied by sellers, eliminating any surplus or shortage in the market.

Surplus

The condition in which the quantity of a good or service supplied exceeds the quantity demanded at the current price.

Foreign Currency

Currency used in a country other than one's own, involved in international trade, investments, and travel.

Quota

A government-imposed trade restriction that limits the quantity or monetary value of goods that can be imported or exported during a specific time.