Brand X is one of many firms in a competitive industry where each firm has a constant marginal cost of 2 dollars per unit of output.If marginal cost for Brand X rises to 4 dollars per unit and marginal costs of all other firms in the industry stay constant, by how much does the price in the industry increase?

Question

Quizplus · Accepted Answer

In a competitive industry, the price is determined by the market supply and demand, not by the cost of a single firm. If only Brand X's marginal cost increases while all other firms' costs remain constant, the overall market supply and price are unlikely to be significantly affected, especially if there are many firms in the industry. Thus, the price in the industry does not increase as a result of the cost increase for one firm.

Brand X Is One of Many Firms in a Competitive