Scenario: the Figure Below Shows the Supply and the Demand

question 94

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 has reached $1.50.Subsequently,further entries lower the equilibrium price to $0.90.At this point,________.

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

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Definitions:

Spot Rate

Refers to the immediate exchange rate at which one currency can be exchanged for another without any delay.

Fair Value Hedge

A type of hedge that is used to mitigate the risk of changes in the fair value of an asset or liability or an identified portion of such an asset or liability.

Forward Contract

A financial derivative that represents a customized agreement to buy or sell an asset at an agreed-upon price on a specific future date.

Spot Rate

This is the current market price at which a particular currency can be bought or sold for immediate delivery.