Assume That the Supply Curve Is Horizontal Because Marginal Cost

question 71

Multiple Choice

Assume that the supply curve is horizontal because marginal cost is constant at $10.John,Robert,and Jimmy each value one compact disc at $20 but only Jimmy and John value a second compact disc (Jimmy at $5 and John at $15) .If a social planner dictates that five compact discs be produced and distributed to John,Robert,and Jimmy,then even if the compact discs are allocated based on demand,this market will lose out on $___ of value.

• A) $5.
• B) $10.
• C) $15.
• D) There will be no lost value as five compact discs is the efficient level..

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Definitions:

AFC

Average Fixed Cost represents the fixed expenses of a firm divided by the quantity of output produced.

Variable Inputs

Inputs or resources whose usage level can be changed in the short term to match the level of production output.

Property Resources

Physical and intangible entities that generate economic value owned by individuals or companies.

Labor

The human effort, including both physical and mental work, used in the production of goods and services.