Assume that Candle Wax is traded in a perfectly competitive market in which the

Question

Assume that Candle Wax is traded in a perfectly competitive market in which the demand curve captures buyers' full willingness to pay while the supply curve reflects all production costs. For each of the following situations, indicates whether the total output should be increased, decreased, or kept the same in order to achieve allocative and productive efficiency. B.The maximum willingness to pay exceeds minimum acceptable price. C. Total Surplus is at a maximum. D. The current quantity produced exceeds the market equilibrium quantity.a.

Explanation / Answer

B.

Total output should increase. It will increase the overall profit of the manufacturer in a given scenario of increased producer surplus.

C.

Total output should be held constant as total surplus is at a maximum. It means that demand and supply are in equilibrium.

D.

Total output should be reduced as because it is not achieving efficiency. It is producing more than what is demanded at equilibrium.

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