10. Consider the market for "Inferior Good X." Assume the following three events happen simultaneously: ✓ Consumer average income levels significantly increase. ✓ A new production technology is adopted that reduces the marginal cost of producing Good X. ✓ The price of a complementary good for X decreases. Which of the following is true regarding the new equilibrium? (A) The equilibrium price will definitely decrease, but the effect on quantity is ambiguous. (B) The equilibrium quantity will definitely increase, but the effect on price is ambiguous. (C) The equilibrium price will definitely increase, but the effect on quantity is ambiguous. (D) Both the equilibrium price and quantity are ambiguous without knowing the magnitude of the shifts.

2. Assume that the medical screening industry is perfectly competitive. Consider a typical firm that is making short-run losses. Suppose the medical screening industry runs an effective advertising campaign which convinces many people that yearly CT scans are critical for good health. How will this affect a typical firm that remains in the industry? (A) The firm's supply curve shifts right and its marginal revenue curve shifts upwards as the market price rises and ultimately the firm starts making profits. (B) The firm's marginal revenue curve and average cost curve shift upwards in response to the increase in market price and advertising expenditure. The firm increases output until it starts breaking even. (C) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production and eventually starts making profits. (D) The marginal revenue curve shifts upwards, the firm's output increases along its marginal cost curve, it expands production until it breaks even.

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