Question

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. Which of the following market outcomes is efficient

(a) Firm B produces a monitor that Cassie buys. David does not purchase a monitor.
(b) Firm A produces a monitor that David buys.
(c) Firm A produces a monitor that Cassie buys. David does not purchase a monitor.
(d) Firm B produces a monitor that David buys.

Answer 1

The answer is: B) Firm A produces a monitor that David buys.

Step-by-step explanation:

Economic efficiency in free markets will tend to allocate the supply of products to meet the demand of the customers who value them the most, in other words, customers that are willing to pay more for those products. Also the suppliers that can produce the products at a lower cost are benefited form economic efficiency in free markets (their profit is higher).

So in this case, the market is more efficient when firm A (lower production cost) sells its monitor to David (willing to pay the highest price).