Question

Milk is an input in the production of cheese, and cheese and bagels are complements. A decrease in the price of milk will _________ the producer surplus in the market for bagels.

Answer 1

The correct answer to the following question is increase in the production of bagel .

Step-by-step explanation:

Here it is given that milk is an input for cheese , and also cheese and bagel are complementary goods, which means that there is an negative cross elasticity between cheese and bagel. So therefore when there is an decrease in the price of milk, which will also lead to decrease in price of cheese and thus, as per the negative cross elasticity when the price of one good decreases that means the production or output of other will increase and vice versa will also be true, so therefore the production of bagel would also increase.