Why does the model of perfect competition imply that firms will produce the products that households want the most?
What will be an ideal response?
In perfect competition, firms maximize profit by producing where price is equal to marginal cost. The price of a good reflects the value that buyers place on the good. The marginal cost of a good represents the opportunity cost of the resources used to produce the good. Producing a good at a level where price is greater than marginal cost means that society could benefit from producing more of the good. On the other hand, producing the good at a level where price is less than marginal cost means that resources are being used to produce something that households value less than its opportunity cost. In this case, society could benefit by producing less of the good. Thus, if firms always produce where price is equal to marginal cost, the efficient mix of output will be produced.
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In order for a production possibilities curve to shift to the right, which of the following must occur?
A) government involvement B) increasing consumer wants C) economic growth D) reductions in the supply of resources
Competitive pricing is efficient because
A) the price that consumers pay reflects the opportunity cost to society of producing the good. B) firms make positive economic profits in long-run equilibrium. C) average revenue equals average cost. D) firms produce above the minimum efficient scale.
One of the most important factors in determining the natural rate of unemployment is demographic change, such as a change in the age of the labor force
a. True b. False Indicate whether the statement is true or false
Suppose two firms operate under a system of marketable pollution permits. If it costs Firm A $25 to reduce pollution by 1,000 units per day, and Firm B can reduce costs by $35 by increasing pollution by 1,000 units per day:
A. the firms cannot gain by trading the right to pollute. B. both firms can benefit if Firm A trades the right to pollute 1,000 units to Firm B for $30. C. both firms can benefit if Firm A trades the right to pollute 1,000 units to Firm B for $40. D. both firms can benefit if Firm B trades the right to pollute 1,000 units to Firm A for $30.