Exam 12: Competition and the Invisible Hand

Use the following to answer questions: Figure: Light Bulbs -(Figure: Light Bulbs) What price of light bulbs would induce the firms in this diagram to minimize total production costs while maintaining the same total output?

Consider two farms. Farm 1 produces the first bushel for $5 each, but the marginal cost rises gradually as the quantity increases. Farm 2 produces the first bushel for $7, but marginal cost also rises gradually as the quantity increases. With a market price of $10 a bushel, how should production be allocated between these two farms?

Suppose there are two firms in an industry (Farm 1 and Farm 2). For every level of output, Farm 1 has higher marginal cost of production than Farm 2. Would it ever make sense for Farm 1 to produce in this industry? Explain.

Which of these equations describes the Invisible Hand Property 1 regarding the minimization of total industry costs?

If a firm has revenues of $100, explicit costs of $50, and implicit costs of $50, its economic profit is:

"[I]n capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization...competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives." This process is called:

Consider two farms. Farm 1 produces unlimited bushels for a cost of $5 each. Farm 2 produces unlimited bushels for a cost of $7 each. How should production be allocated between these two farms?

If the marginal cost of production at Firm 1 is less than the marginal cost of production at Firm 2 but the overall costs of production are lower on average at Firm 2, then:

The Invisible Hand Property 2 suggests that:

The elimination principle suggests that:

If firms do not coordinate with each other, it is hard for free markets to equalize marginal costs of production across firms.

Which of the following best illustrates the elimination principle?

In markets for public goods, the invisible hand concept does not work in society's best interest.

Explain the term creative destruction. In particular, explain what is being "created" and what is being "destroyed."

If the presence of externalities clouds the signals that prices give in respect to costs and benefits,:

Outcomes that people neither intend nor design:

Stating that marginal revenue equals price is equivalent to saying that marginal cost equals price for the profit maximizing quantity.

A small island nation produces only boxes of macaroni and cheese, most of which it sells in the export market. The world price per box is $10, regardless of the quantity exported. The nation has three macaroni and cheese factories, each of which varies in efficiency and each has rising marginal costs. To profit the most as a country, what would this nation do?

According to the elimination principle, firms enter a market when ______ and exit a market when ______.

Suppose that Sandy owns a farm in North Carolina and Pat owns a farm in Iowa, and Sandy's farm is generally more productive than Pat's. If both Sandy and Pat sell their corn in the same market, Sandy should produce the output at the marginal cost that is: