Figure 5.3 Figure 5.3 shows the market for tiger shrimp.The market is initially in equilibrium at a price of $15 and a quantity of 80.Now suppose producers decide to cut output to 40 in order to raise the price to $18.
-Refer to Figure 5.3.At a price of $18, consumers are willing to buy 40 metrics of tiger shrimp.Is this an economically efficient quantity?

Question

Figure 5.3  Figure 5.3 shows the market for tiger shrimp.The market is initially in equilibrium at a price of $15 and a quantity of 80.Now suppose producers decide to cut output to 40 in order to raise the price to $18.
-Refer to Figure 5.3.At a price of $18, consumers are willing to buy 40 metrics of tiger shrimp.Is this an economically efficient quantity?

Quizplus · Accepted Answer

The economically efficient quantity is where the marginal benefit equals the marginal cost. In this scenario, the producers have reduced output to increase the price to $18, but this has led to a decrease in quantity demanded to 40. Therefore, if the market were to produce and sell 80 units, the marginal benefit of the 80th unit would be lower than the marginal cost of producing it, making it economically inefficient. Thus, the answer is A, as the marginal benefit of the 40th unit exceeds its marginal cost.

Figure 53 Figure 5