Question

If firms in a competitive market are not​ identical, then an increase in cost for all firms will A. push the most inefficient firms out of the market. B. Need more information. C. shift marginal cost to the right. D. push the most efficient firms out of the market.

Answer 1

A. push the most inefficient firms out of the market

Step-by-step explanation:

The most effecient firms will offer their product at better price than the inefficient firms. Therefore they will be push-out from the market. That's because in a competitive market firms cannot set the price. Their profit are related to his cost and quantity produced:

`Profit = Sales* Q - C* Q`

So a perfectly competitive and efficient firm will be able to sold more quantity than inefficient firm as their average cost will be lower. Therefore, making more profit at better price pushing the less efficient firm out.

Also, an increase in cost shift the marginal cost to the left, not to the right.