What role does the invisible hand play when two firms are producing in the same competitive industry?
What will be an ideal response?
When two firms are producing in the same competitive industry, the managers of both firms will be interested in maximizing individual profits. Although both firms function independently for their own objectives, the total cost of production will be minimized and the total profits across the two firms will be maximized. This happens because both firms produce where marginal cost is equal to price and eventually marginal cost across the firms is equalized. Because both firms are manufacturing at their least-cost output levels, total cost of production is minimized, and social surplus and profit are maximized.
You might also like to view...
Another term for stocks is equity.
Answer the following statement true (T) or false (F)
Skeptics have been historically incorrect about
A. the depletion of earth’s most valuable resources. As resource prices increase, more discoveries have been made. B. market-based approaches in reducing pollution. Zero pollution has been achieved. C. the depletion of earth’s most valuable resources. As resource prices decrease, firms are incentivized to sell all their holdings before prices continue to fall. D. state owned firms. They traditionally perform better than markets with pollution charges.