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

Answer 1

d. Firm B produces a monitor that David buys.

Step-by-step explanation:

If Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost;and Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. Then the logical conclusion for a market outcome that is efficient is that Firm B produces a monitor that David buys.

In an efficient market there is perfect information and buyers are fully aware of what the firms do, hence if it is known that Firm A is a low cost producer, it will only attract customers who are willing to buy cheap while firms like B who are perceived to produce better quality products will sell to customers like David who are willing to pay more.