The Following Table Gives the Average Cost of Production for Three

question 63

Multiple Choice

The following table gives the average cost of production for three different categories of firms producing the same product.

$$\begin{array} { | c | c | c | c | } \hline \begin{array} { c } \text { Type of } \\\text { firme }\end{array} & \begin{array} { c } \text { No. of } \\\text { firms }\end{array} & \begin{array} { c } \text { Awerane } \\\text { sostper } \\\text { unit }\end{array} & \begin{array} { c } \text { Equilibrium } \\\text { output }\end{array} \\\hline \hline \text { A } & 350 & \$ 3 & 10 \text { units } \\\text { B } & 400 & \$ 5 & 10 \text { units } \\\text { C } & 550 & \$ 10 & 10 \text { units } \\\hline\end{array}$$
-Refer to Table .Suppose the price level in the market is at $6 per unit and the quantity demanded is 3,500 units.However, an increase in the fuel costs drives up the variable cost incurred by both Type A and Type B firms by $2.50 per unit.Which of the following situations will arise?

• A)Type A firms will be able to supply the 3,500 units demanded and will earn a profit.
• B)Type A firms will leave the market until the price level increases to cover the variable cost.
• C)Both Type A and Type B firms will reduce production until the price level increases to cover the variable cost.
• D)Both Type A and Type B firms will increase production to lower the average variable cost.

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