The Following Graph Depicts the Market for Potatoes in West

question 119

Multiple Choice

The following graph depicts the market for potatoes in West Virginia. Assume there are similar markets for potatoes in all other U.S. states and that the potatoes sold in all states are identical. Further, assume potato sellers incur zero costs to transport potatoes between any U.S. state and that there are no other barriers to trade. Use this graph to answer the next two questions:

-Suppose the equilibrium price of a pound of potatoes in all U.S.states is initially $1.20.Further,suppose there is an increase in potato demand in all U.S.states except West Virginia.This increase in demand causes potato prices in all U.S.states,except West Virginia,to increase.If the law of one price holds,potato sellers will eventually adjust the relative quantity of potatoes they sell in all U.S.states,including West Virginia.After this adjustment:

• A) the West Virginia potato supply curve will shift rightward.
• B) the West Virginia potato demand curve will shift rightward.
• C) potato prices in West Virginia will fall and potato demand will increase in all other U.S.states.
• D) the price of a pound of potatoes in all states that share a border with West Virginia will not change.
• E) the price of a pound of potatoes in all states that share a border with West Virginia will fall.

Understand the role of product differentiation in shaping monopolistically competitive market structures.

Analyze the determinants of the equilibrium price and quantity in monopolistically competitive markets.

Evaluate the conditions for short-run and long-run equilibria in monopolistically competitive markets, including the role of economic profits.

Identify the profit-maximizing strategies of firms in monopolistically competitive markets.

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