In an economy where heating oil is the primary source of heat for most households, new supplies of natural gas, a substitute for
heating oil, are discovered. Natural gas provides heat at a much lower cost. What is the most likely effect of these discoveries on the market price and quantity of heating oil produced?Price Decreases & Quantity Decreases
Price Decreases & Quantity Increases
Price Increases & Quantity Decreases
Price Does Not Change & Quantity Does Not Change
Price Decreases & Quantity Increases
Price Increases & Quantity Decreases
Price Does Not Change & Quantity Does Not Change
1 answer:
You might be interested in
Answer:
B
Explanation:
First, a monopoly produce less than the socially efficient quantity because as the figure shows, the quantity produced is determined by the intersection between the marginal cost curve (MC) and the marginal revenue curve (MR) and not by the intersection between the MC and the demand. For instance, there is a deadweight loss (shown by the figure).
Second, equilibrium price is always higher than in a competitive market because is always higher than the MC. The price is determined by the equilibrium quantity (found before) and the demand. Also, there are barries to entry and so monopolist have always price control.
