Refer to Figure 4-4. The figure above represents the market for iced tea. Assume that this is a competitive market. At an output of 10,000 units
A) the marginal benefit of iced tea is greater than the marginal cost; therefore, output is inefficiently high.
B) the marginal benefit of iced tea is greater than the marginal cost; therefore, output is inefficiently low.
C) the marginal cost of iced tea is greater than the marginal benefit; therefore, output is inefficiently low.
D) producers should lower the price to $1 in order to sell the quantity demanded of 10,000.
B
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Assume that in a price-fixing game, if Player A breaks the agreement in the first year, she earns $11 while Player B earns $5 . However, if Player A breaks the agreement once, Player B decides to break the agreement for eternity, leaving each to receive $8 per year for the rest of their lives. If they both keep the agreement each receives $9 per year for the rest of their life. If the discount
rate is 120 percent per period: a. Player A will prefer to break the agreement in the first year. b. Player A will prefer to break the agreement in the second year. c. Player A will prefer to keep the agreement throughout her life. d. Player A will prefer to keep the agreement only for the first five years.
Which of the following is a major implication of the invisible hand concept?
a. When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. b. Prosperity cannot be achieved unless the selfish nature of people can be changed. c. Competition is harmful to the health of an economy because it results in wasteful duplication. d. Government-operated firms tend to have higher efficiency and lower costs than private sector firms.