Question
Microeconomics Question on Market structure
Two firms, X and Y, are operating in a perfectly competitive market. The price elasticity of supply of X and Y are respectively 0.5 and 1.5. Then
A
if the market price increases by 1 %, X supplies 0.5 % less quantity
B
Y experiences a slower increase in marginal cost in comparison to X
C
if market price increases by 0.5 %, X supplies 1 % more quantity
D
Y experiences a rapid increase in marginal cost in comparison to X
Answer
Y experiences a slower increase in marginal cost in comparison to X
Explanation
Solution
The correct option is (B): Y experiences a slower increase in marginal cost in comparison to X