Reference no: EM132473132
In a society, the efficient quantity of public goods produced is determined in the same way as the efficient quantity of production in a firm. That is, by comparing the marginal cost and marginal revenue and producing at the point where they equal each other. In hiring workers, the efficient number of workers to hire is at the point where the marginal revenue product (that is, price of product x no. of unitsworker produces) of an extra worker is equal to the cost or wage of that worker. To put it simply, if you pay a worker $100 per day (the Marginal Cost), once that worker continues to bring in revenue (Marginal Revenue) that exceeds his wage per day, you may continue to hire more workers. The optimal point is when the wage (or MC) = revenue (or MR). Note that MC = MR is an optimal point of efficiency, and when Price = MC, this yields the most benefit to society. Let's take a look at the effect of these factors in competitive versus monopoly situation and answer the following questions.
a. In Diagram 1 above, suppose the industry is a competitive one. What would be the price charged and quantity exchanged? Explain how you derived your answer.
b. Now, assume Diagram 1 represents an industry that is a monopoly. What would be the prevailing price and quantity exchanged? Explain.
c. Assume Diagram 1 represents an industry that is a monopoly. What would be the profit per week? Show your calculations.
d. What point on Diagram 1 does efficiency occur? Why
e. Why is a Perfectly Competitive industry considered more socially efficient and desirable than the other forms of market competition?
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