Question

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, indicate whether the total output should be increased, decreased, or kept the same in order to achieve allocative and productive efficiency.

a. Maximum willingness to pay exceeds minimum acceptable price: .
b. MC > MB: .
c. Total surplus is at a maximum: .
d. The current quantity produced exceeds the market equilibrium quantity

Answer 1

The answers are:

A) total output should increase

B) total output should decrease

C) total output should be kept the same

D) total output should be decreased

Step-by-step explanation:

A) consumers are willing to pay a higher price; the quantity supplied should increase

B) if Marginal cost > Marginal benefit; the quantity supplied should decrease

C) if total surplus is at maximum; the equilibrium point between quantity demanded and quantity supplied will remain the same

D) if the quantity supplied exceeds the quantity demanded; to reach an equilibrium point, the quantity supplied should decrease to match the quantity demanded