1. What is allocative efficiency? A.It refers to a situation in which resources
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Question
1. What is allocative efficiency?
A.It refers to a situation in which resources are allocated such the last unit of output produced provides a marginal benefit to consumers equal to the marginal cost of producing it.
B.It refers to a situation in which resources are allocated to their highest profit use.
C.It refers to a situation in which resources are allocated fairly to all consumers in a society.
D.It refers to a situation in which resources are allocated such that goods can be produced at their lowest possible average cost.
2. If a typical firm in a perfectly competitive industry is incurring losses, then
A. some firms will exit in the long run causing market supply to decrease and market price to fall, increasing losses for the remaining firms.
B.some firms will enter in the long run causing market supply to increase and market price to rise, increasing profit for all firms.
C.some firms will exit in the long run causing market supply to decrease and market price to rise, increasing profits for the remaining firms.
D.all firms will continue to lose money.
3. The marginal revenue from one additional unit sold is the sum of the gain in revenue from selling the additional unit and the loss in revenue from having to charge a lower price to sell the additional unit. Based on the diagram in the figure,
A.X? + Z represents the loss? (output effect) and Y the gain? (price effect).
B.X represents the loss? (price effect) and Y? + Z the gain? (output effect).
C.Y represents the gain? (output effect) and X the loss? (price effect).
D.X represents the gain? (price effect) and Y the loss?(output effect).
Price $10 Demand QuantityExplanation / Answer
a) Allocative efficiency is achieved when the firm is producing at the point where the price is equal to the marginal cost, The answer is "A", the benefit earned by the consumer is equal to the marginal cost of the firm.
b) "C"
In a perfectly competitive market, there is easy entry and exit in the market. If the firms are facing a loss some firms will exit the market, increasing the price and decreasing the supply, the remaining firms will make a profit.
c) "C"
Y represents the gain output effect and X represents the loss price effect.
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