Due to an increase in the price of a competitor's product, the demand for a firm's product increases sharply. How is this most likely to affect the firm's marginal revenue and marginal cost?
A) Marginal revenue will increase but marginal cost will decrease.
B) Both marginal revenue and marginal cost will not be affected.
C) Both marginal revenue and marginal cost will increase.
D) Marginal revenue will not change but marginal cost will increase.
E) Marginal revenue will increase but marginal cost will not change.

Question

Quizplus · Accepted Answer

An increase in demand for a firm's product due to a competitor's price increase will result in an upward shift in the firm's demand curve. This will lead to a higher price and quantity sold, resulting in an increase in marginal revenue. However, since there is no change in the firm's production process or input costs, marginal cost will remain the same. Therefore, option E is the correct choice.

Due to an Increase in the Price of a Competitor's