What is the Invisible Hand Property 1?
A) Central planners can achieve lower costs of production than self-interested profit-seeking firms.
B) In a free market, the total costs of producing output are minimized because each firm produces up to the point where P = MC.
C) Firms enter industries whenever P AC.
D) Firms shut down whenever revenues are insufficient to cover variable costs.

Question

What is the Invisible Hand Property 1?
A) Central planners can achieve lower costs of production than self-interested profit-seeking firms.
B) In a free market, the total costs of producing output are minimized because each firm produces up to the point where P = MC.
C) Firms enter industries whenever P > AC.
D) Firms shut down whenever revenues are insufficient to cover variable costs.

Quizplus · Accepted Answer

The Invisible Hand Property 1 states that in a free market, the total costs of producing output are minimized because each firm produces up to the point where P = MC. This means that firms are guided by the invisible hand of market forces to produce the optimal level of output at the lowest possible cost, resulting in an efficient allocation of resources. Option A is incorrect because central planners may not have the necessary information and incentives to achieve lower costs of production compared to profit-seeking firms. Options C and D are incorrect because they relate to specific decisions made by firms and do not represent the Invisible Hand Property 1.

What Is the Invisible Hand Property 1