Firm A is a new producer in the market for good? X, which is characterized by li

Question

Firm A is a new producer in the market for good? X, which is characterized by linear demand and supply curves.? Initially, to attract? customers, the firm prices its product low at? $8 per unit. While the firm sells? 1,000 units of the product at this? price, there is a shortage in the market. This shortage can be cleared if price is increased to? $10 per unit. The quantity demanded and supplied at this higher price will be? 1,500 units. Which of the following is most strongly supported by this? information?

A. The law of demand does not hold for good X.

B. Firm A is a monopolist.

C. Producer surplus will increase if the price rises from? $8 per unit to? $10.

D. The increase in price from? $8 to? $10 will cause a deadweight loss in this market.

E. Good X has many substitutes.

Explanation / Answer

The Statement (C) i.e. producer surplus will increase if the price rises from $8 per unit to $10 per unit because only when producer surplus will rise will there be a rise in the quantity supplied of goods. Hence the correct answer is (C).

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.