Assume that a perfectly competitive market is in equilibrium, and that margin...
Assume that a perfectly competitive market is in equilibrium, and that marginal costs are strictly increasing for all firms. If willingness to pay (WTP) doubles for all units, then at the new equilibrium:a. the equilibrium price will increase more than the quantity supplied.b. the equilibrium price will double.c. the equilibrium quantity more than doubles.d. the marginal cost at equilibrium will be larger than the original.static/image/hrline/1.gif
Assuming that a perfectly competitive market is in equilibrium , and that marginal cost are strictly increasing for all firms . If willingness to pay double for all units then at the new equilibrium :Option A is not the correct answer . Equilibrium price is the price where quantity demanded is equal to quantity supplied . Equilibrium price is directly related to quantity supplied . Therefore , in a perfectly competitive market , at the new equilibrium , the equilibrium price will not increase more than quantity supplied .Option B is the correct answer . Willingness to pay is the price which consumer tends to pay for purchasing a product or a commodity . If the willingness to pay of consumers doubles for all units . Then equilibrium price will double as equilibrium price is highly influenced by willingness to pay .Option C is not the correct answer . Equilibrium quantity is the balance between the demand and supply of the commodity . If the willingness to pay double then quantity supplied will be more than quantity demanded , here this decreases the demand for the commodity . Therefore , equilibrium quantity doesn't increase more than the doubles .Option D is not the correct answer . Marginal cost is the cost which is brought by the additional unit produced . In a perfectly competitive market , equilibrium price is equal to short run marginal cost . Therefore , marginal cost at equilibrium will not be larger than the original .
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