MC Question (1 Viewer)

[sab13562]

The answer is D. I know that decreased competition means that prices will increase, however, why would they decide to reduce the quantity as well?

 

[jimmysmith560]

Upward shifts in the supply and demand curves affect the equilibrium price and quantity. If the supply curve shifts upward, meaning supply decreases but demand holds steady, the equilibrium price increases but the quantity falls, which is consistent with (D). For example, if gasoline supplies fall, pump prices are likely to rise.

I hope this helps!

 

[sab13562]

Upward shifts in the supply and demand curves affect the equilibrium price and quantity. If the supply curve shifts upward, meaning supply decreases but demand holds steady, the equilibrium price increases but the quantity falls, which is consistent with (D). For example, if gasoline supplies fall, pump prices are likely to rise.

I hope this helps!

Thank you for the swift reply!
So with the case of decreased competition, supply decreases because less businesses can produce the product? And since competition is less, businesses don't bother producing as prices are higher anyways?

 

[jimmysmith560]

Thank you for the swift reply!
So with the case of decreased competition, supply decreases because less businesses can produce the product? And since competition is less, businesses don't bother producing as prices are higher anyways?

No worries! Those are logical outcomes. Having fewer producers causes a lower supply and therefore the equilibrium quantity is lower.

 

[sab13562]

No worries! Those are logical outcomes. Having fewer producers causes a lower supply and therefore the equilibrium quantity is lower.

thank you so much for the help!

 

[Hiheyhello]

Thank you for the swift reply!
So with the case of decreased competition, supply decreases because less businesses can produce the product? And since competition is less, businesses don't bother producing as prices are higher anyways?

yep, that’s how i would interpret it.
i’d also add that when there is less comp, firms have less of an incentive to engage in microeconomic reform. as a monopoly they don’t feel the need to go to that extra effort of expanding their production capacity coz they don’t need to compete and consumers are dependant on them. microeconomic reform is a supply side reform, and usually leads to an increased quantity of goods and services produced. therefore less completion —> less reform —> less Q produced

 

[sab13562]

yep, that’s how i would interpret it.
i’d also add that when there is less comp, firms have less of an incentive to engage in microeconomic reform. as a monopoly they don’t feel the need to go to that extra effort of expanding their production capacity coz they don’t need to compete and consumers are dependant on them. microeconomic reform is a supply side reform, and usually leads to an increased quantity of goods and services produced. therefore less completion —> less reform —> less Q produced

Thank you so much! That made a lot of sense.