Refer to the information provided in Figure 12.5 below to answer the question(s) that follow. Figure 12.5
-Refer to Figure 12.5. Hula hoops are produced in a perfectly competitive market. This hula hoop firm is currently producing and selling 100 hula hoops per week. Which of the following is true?
A) Society would be better off if more hula hoops were produced because at the current level of production price is greater than marginal cost.
B) Society would be better off if fewer hula hoops were produced because if this firm reduced its production, its profits would increase.
C) Hula hoop production is at the efficient level because ATC is minimized.
D) Fewer resources should be devoted to hula hoop production because ATC is less than price.

Question

Refer to the information provided in Figure 12.5 below to answer the question(s) that follow.  Figure 12.5
-Refer to Figure 12.5. Hula hoops are produced in a perfectly competitive market. This hula hoop firm is currently producing and selling 100 hula hoops per week. Which of the following is true?
A) Society would be better off if more hula hoops were produced because at the current level of production price is greater than marginal cost. 
B) Society would be better off if fewer hula hoops were produced because if this firm reduced its production, its profits would increase. 
C) Hula hoop production is at the efficient level because ATC is minimized. 
D) Fewer resources should be devoted to hula hoop production because ATC is less than price.

Quizplus · Accepted Answer

In a perfectly competitive market, the efficient level of production is where price equals marginal cost. If price is greater than marginal cost, as stated, it means that producing more would add more to total revenue than to total cost, thus benefiting society by increasing total surplus.

Refer to the Information Provided in Figure 12