Explain why resources are used efficiently in a competitive market
What will be an ideal response?
Resources are used efficiently in a competitive market because the market demand curve is the same as the marginal social benefit curve and the market supply curve is the same as the marginal social cost curve. The equilibrium quantity, determined by where the demand and supply curves intersect, is the same quantity where the marginal social benefit and marginal social cost curves intersect, which is the efficient quantity.
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In the long-run equilibrium, both the perfectly competitive firm and the monopolistically competitive firm produce the output at which MR=MC and charge a price equal to the average total cost of production
Indicate whether the statement is true or false
A firm that acquires a substitute product can try and reduce inter-product cannibalization by
a. Doing nothing b. Repositioning its product or the substitute so that they do not directly compete with each other c. Pricing each product at the same level d. Raising prices on the low-margin products