Scenario: There are two firms producing ballpoint pens in a perfectly competitive industry. The market price of one pen is $5. Firm A has a lower marginal cost than Firm B. The following graphs illustrate the marginal cost curves of both firms.

-Refer to the scenario above.If the government enforces a ban on Firm B and asks Firm A to carry out all production,________.
A) Firm A's marginal cost is likely to decrease, but its average cost is likely to increase
B) Firm A's marginal cost and average cost are likely to decrease
C) Firm A's marginal cost is likely to increase, but its average cost is likely to decrease
D) Firm A's marginal cost and average cost are likely to increase

Question

Scenario: There are two firms producing ballpoint pens in a perfectly competitive industry. The market price of one pen is $5. Firm A has a lower marginal cost than Firm B. The following graphs illustrate the marginal cost curves of both firms.
 
-Refer to the scenario above.If the government enforces a ban on Firm B and asks Firm A to carry out all production,________.
A) Firm A's marginal cost is likely to decrease, but its average cost is likely to increase 
B) Firm A's marginal cost and average cost are likely to decrease 
C) Firm A's marginal cost is likely to increase, but its average cost is likely to decrease 
D) Firm A's marginal cost and average cost are likely to increase

Quizplus · Accepted Answer

When Firm A takes over all production, it may face higher marginal and average costs due to increased production beyond its optimal capacity, leading to inefficiencies and higher costs.

Scenario: There Are Two Firms Producing Ballpoint Pens in a Perfectly