Do competitive markets use resources efficiently? Explain why or why not
What will be an ideal response?
In the absence of the obstacles mentioned earlier in the chapter, competitive markets use society's resources efficiently. For resources to be used efficiently they must be allocated to produce the quantity of a good or service where the marginal cost of the last unit produced in the market is equal to the marginal benefit. This condition will be met in a competitive market because the quantity occurs where the demand curve (which equals the marginal social benefit curve) intersects the supply curve (which equals the marginal social cost curve).
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Suppose a perfectly competitive firm is producing 77 units of output, and the marginal cost of the 77th unit is 11. If the firm can sell each unit of output for $8 and the firm's revenue is sufficient to cover its variable cost, the firm should:
A. decrease production. B. lower its price. C. raise its price. D. increase production.
Consumer preferences, prices of related goods, income, and demographic characteristics are often termed:
A) market technologies. B) demand prices. C) demand shifters. D) supply determinants.
Refer to the diagram above, which shows three supply curves for corn. A movement from point a to point b is caused by a change in the:
a. Price of corn in the market b. Number of corn farmers c. Price of resources used to produce corn d. Technology of corn farming
The monopolistically competitive seller's demand curve will become more elastic the:
A. more significant the barriers to entering the industry. B. greater the degree of product differentiation. C. larger the number of competitors. D. smaller the number of competitors.