Why does the model of perfect competition imply that there will be an efficient allocation of resources among firms?
What will be an ideal response?
The model of perfect competition implies an efficient allocation of resources among firms due to the assumption of profit maximization. In order to maximize profit, a firm must minimize the cost of producing its chosen level of output. This means that the firm must choose a production technology that produces the output it wants at the lowest cost. Also, if all firms pay the same input prices, the marginal revenue product of the last unit of an input hired will be the same in all firms. This occurs because maximizing profit means hiring an input up until the inputs marginal revenue product is equal to its price.
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The figure above shows supply curves for soft drinks. Suppose the economy is at point a. An increase in the number of suppliers would be shown as a movement from point a to a point such as
A) none of the points that are illustrated. B) point b. C) point c. D) point d.
The current international monetary system is best described as a: a. fixed exchange rate system. b. gold standard
c. dirty float system. d. free float system.
The "free rider problem" occurs in connection with
a. private goods. b. both public and private goods. c. goods that are not scarce. d. public goods.
Government social benefits paid to individuals are
A. known as transfer payments, and are counted as part government consumption and investment. B. known as the output of government, and are typically used to fund personal consumption. C. known as transfer payments, and are typically used to fund personal consumption. D. known as the output of government, and are counted as part government consumption and investment.