Assume that candle wax is traded in a perfectly competitive market in which the demand curve captures buyers’ full willingness t

Question

2 months ago

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Assume that candle wax is traded in a perfectly competitive market in which the demand curve captures buyers’ full willingness t

o pay while the supply curve reflects all production costs. For each of the following situations, indicate whether the total output should be increased, decreased, or kept the same in order to achieve allocative and productive efficiency.a. maximum willingness to pay exceeds minimum acceptable price. b. mc > mb. c. total surplus is at a maximum. d. the current quantity produced exceeds the market equilibrium quantity.

Business

1 answer:

Nady [3.6K] · Answer 1 · 2026-03-16T04:02:55+03:00

Answer:

The responses are listed as follows:

A. Increase the output

B. Decrease the output

C. Keep the output the same

D. Decrease the output

Explanation:

In the case of A.

If the maximum price consumers are ready to pay surpasses the minimum price acceptable, output should be increased because consumers’ willingness to pay a higher price translates into greater revenue, hence boosting profit.

For B.

When marginal cost exceeds marginal benefit (mc > mb), output should be reduced. This is because profit maximization occurs when marginal costs equate marginal benefits; therefore, exceeding marginal benefits will lead to losses, necessitating a reduction in output.

For C.

If total surplus is maximized, output should remain unchanged, as implementing additional outputs at this peak would result in diminishing returns on invested resources.

For D.

When the current output exceeds the equilibrium quantity in the market, the output should be decreased to prevent oversaturation of the market, which would lower prices.