Figure 91 Illustrates the Market Conditions Facing SKF and Timken, Initially

Multiple Choice

Figure 9.1 illustrates the market conditions facing SKF and Timken, initially operating as competitors in the domestic ball bearing market. Each firm realizes constant long-run costs, MC₀=AC₀.
Figure 9.1. International Joint Venture


-Consider Figure 9.1.Assume Venture Company's formation yields new cost reductions, indicated by MC₁=AC₁, which result from changes in work rules by Venture Company employees that led to higher worker productivity.Compared to the original competitive equilibrium, the net effect of Venture Company's formation on welfare now is

A) no change.
B) gain of $2.50.
C) gain of $5.50.
D) loss of $5.50.