A two-good economy is in a competitive equilibrium.The price of a piece of candy is $2 and the price of a desk is $12.The marginal cost of candy is given by MC_c = 2Q_c and the marginal cost of a desk is MC_d = 4 + 4Q_d.The current production level of candy is one piece.What is the output of desks?

Question

Quizplus · Accepted Answer

In a competitive equilibrium, the price of a good equals its marginal cost. For desks, the price is $12. Using the marginal cost formula for desks, MC_d = 4 + 4Q_d, and setting it equal to the price, we get 12 = 4 + 4Q_d. Solving for Q_d gives Q_d = 2.

A Two-Good Economy Is in a Competitive Equilibrium