4. Marginal analysis and efficiency The following graph shows the market demand

Question

4. Marginal analysis and efficiency The following graph shows the market demand and supply curves for camisoles that are sold in a perfectly competitive market. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph Graph Input Tool 10 Quantity Supp Marginal Utility ($ per camisole) 8 Marginal Cost ($ 2 per camisole) 4 emand 0 4 QUANTITY (Camisoles per day) If the economy produces and sells two camisoles (represented by the green line on the graph), the marginal utility (MU) of the last camisole bought is $8 and the marginal cost(MC) of the last camisole sold is $2 . This means that the MU of the last camisole bought is the MC of the last camisole sold, so the market is

Explanation / Answer

Here at quantity level, 2 MU is $8 and MC is $2. Therefore MU is greater than marginal cost. So the market is efficient. So

If the economy produces and sells two camisoles Mu of the last camisole bought is $8 and the MC of the last camisole bought is $2. This means MU of the last camisole bought is greater than MC of the last camisole sold. so the market is efficient.

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