Suppose That Firms a and B Each Produce High-Resolution Computer

question 131

Multiple Choice

Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost. Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than Cassie. If Firm A produces a monitor that Cassie buys but David does not, then the market outcome illustrates which of the following principles?
i. Free markets allocate the supply of goods to the buyers who value them most highly, as measured by their willingness to pay.
ii. Free markets allocate the demand for goods to the sellers who can produce them at the least cost.

• A) i) only
• B) ii) only
• C) both i) and ii)
• D) neither i) nor ii)

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Definitions:

Residual Income

Income that continues to be generated after the initial effort has been expended, often used in the context of investments or intellectual property.

Minimum Required Rate of Return

The lowest acceptable return on an investment, determined by an investor's risk tolerance and other factors, used as a benchmark for evaluating potential investments.

Operating Assets

Cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes.

Margin

The difference between the selling price of a product or service and its production or acquisition cost, often expressed as a percentage.