Use the following to answer question(s): Correcting for Market Failure: Imperfect Competition

-(Exhibit: Correcting for Market Failure: Imperfect Competition) If the government intervenes to induce the imperfectly competitive firm shown in this exhibit to produce at the efficient level of output, the gain will be the _______ under the _______ curve between ________ .
A) area; supply; R and W
B) area; demand; R and W
C) vertical distance; demand; V and W
D) vertical distance; supply ; V and W

Question

Use the following to answer question(s): Correcting for Market Failure: Imperfect Competition
 
-(Exhibit: Correcting for Market Failure: Imperfect Competition) If the government intervenes to induce the imperfectly competitive firm shown in this exhibit to produce at the efficient level of output, the gain will be the _______ under the _______ curve between ________ .
A) area; supply; R and W 
B) area; demand; R and W 
C) vertical distance; demand; V and W 
D) vertical distance; supply ; V and W

Quizplus · Accepted Answer

If the government intervenes to induce the imperfectly competitive firm to produce at the efficient level of output, the gain will be the area under the demand curve between points V and W. This is because at the efficient level of output, the price charged by the firm will be equal to the marginal cost of production, which is where the demand curve intersects the supply curve. The area between points V and W represents the consumer surplus that is gained from the firm producing at the efficient level, as consumers are willing to pay more for the good than the marginal cost of production. Therefore, choice B is the best answer.

Use the Following to Answer Question(s): Correcting for Market Failure