Final answer:
The increase in the price of a Gremlin transmission would likely cause an increase in the production cost of the Gremlin car, leading to answer (c) where the cost of producing the Gremlin increases.
Step-by-step explanation:
If the price of the Gremlin transmission (an input in producing a Gremlin car) increases, this would likely lead to an increase in the cost of producing the Gremlin car. This is because the inputs used in the production process are part of the total costs incurred by the firm.
Consequently, an increase in input costs would require the car manufacturer to spend more on production, assuming all other factors remain constant.
Since cost of production and desired profit determine the price of the product, an increase in production costs might lead to an increase in the selling price.
Additionally, the car manufacturer could adjust supply levels accordingly. In some cases, higher costs might discourage production, leading to reduced supply if car manufacturers are unwilling or unable to increase prices to maintain profit margins.
Therefore, the correct answer is: c. The cost of producing the Gremlin increases.