Question 2(i) A bicycle manufacturer expects the price of bicycle to rise in the near future, the supplier will ______________________.A: increase the supply of bicycle nowB: decrease the supply of bicycle nowC: decrease the quantity supplied of bicycle nowD: increase the quantity supplied of bicycle now(ii) Red Mountain Coffee Company (RM) is a monopolistic competitive firm. At which of the following quantity should RM produce in order to maximize its profit?A: When marginal cost is equal to average revenue.B: When marginal cost is equal to marginal revenue.C: When the average total cost is equal to average revenue.D: When the average variable cost is equal to marginal revenue.

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Asked Dec 17, 2019
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Question 2

(i) A bicycle manufacturer expects the price of bicycle to rise in the near future, the supplier will ______________________.

A: increase the supply of bicycle now

B: decrease the supply of bicycle now

C: decrease the quantity supplied of bicycle now

D: increase the quantity supplied of bicycle now

(ii) Red Mountain Coffee Company (RM) is a monopolistic competitive firm. At which of the following quantity should RM produce in order to maximize its profit?

A: When marginal cost is equal to average revenue.

B: When marginal cost is equal to marginal revenue.

C: When the average total cost is equal to average revenue.

D: When the average variable cost is equal to marginal revenue.

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Expert Answer

Step 1

(i)
When the bicycle manufacturer expects the price of the bicycles to rise in the economy, it means that the manufacturer expects the higher revenue to the products sold in the market. This means that the total revenue of the seller will increase from the market. Since the cost of production remains the same and the revenue increases, it indicates that the excess revenue made after deducting the cost of production from the total revenue increases. This excess revenue is known as the profit of the producer.

Step 2

When the producer expects the higher price in the future, the producer expects higher profit in the future. Thus, the producer will be willing to offer more products in the future than in the present. This means that, in...

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