ECONOMICS (CBSE/UGC NET)

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ECONOMICS

SUPPLY

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Lola is selling Happy Teen magazine at her school to raise money for a trip to Washington, DC. The marginal cost of each magazine she buys is $2.00, and the price she sells them for is $5.00. Yesterday, she got a letter in the mail saying that the magazine was raising its cost per magazine from $2.00 to $3.50. Today, Mrs. Ibarra pulls Lola aside and informs her that, from now on, she will only be allowed to sell the magazine for $3.25 at school. What has happened to Lola’s incentive to produce?
A
She will have less incentive to produce because the higher marginal cost lowers her profits
B
She will have more incentives to produce because she will sell more at the lower prices and more profits
C
Her incentive to produce remains unchanged because she still wants to go to Washington, DC.
D
She will have no incentive to produce because with the change in marginal cost and price, she will no longer make a profit
Explanation: 

Detailed explanation-1: -The law of supply says that a higher price will induce producers to supply a higher quantity to the market. Because businesses seek to increase revenue, when they expect to receive a higher price for something, they will produce more of it.

Detailed explanation-2: -Supply-a schedule or a curve showing the amounts of a product a producer is willing and able to produce and make available for sale at each of a series of possible prices during a specific period of time.

Detailed explanation-3: -Economists define supply as the quantity of a good or service that producers are willing and able to offer for sale at each possible price during a given time period.

Detailed explanation-4: -The quantity supplied is the amount of a good or service that is made available for sale at a given price point. In a free market, higher prices tend to lead to a higher quantity supplied and vice versa.

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