The "invisible hand" in a competitive market pushes the firms in the market to
A) charge a price that is equal to their marginal revenue.
B) produce an output level that allows them to earn some positive economic profits.
C) use resources and produce output that maximize consumer and produce surplus.
D) operate where their individual demand curve is above their long-run average cost curve.

Question

Quizplus · Accepted Answer

The "invisible hand" is a metaphor used to describe the self-regulating nature of the marketplace. In a competitive market, the pursuit of profits by firms, and the pursuit of satisfaction by consumers, collectively determine the price and output levels of goods and services. The "invisible hand" ensures that firms use resources and produce output in a way that maximizes consumer and producer surplus, while minimizing deadweight losses. Thus, choice (C) is the best answer.

The "Invisible Hand" in a Competitive Market Pushes the Firms