Table 7-12
The only four producers in a market have the following costs:

-Refer to Table 7-12. If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for
A) $50 or slightly more.
B) $100 or slightly less.
C) $150 or slightly less.
D) $200 or slightly more.

Question

Table 7-12
The only four producers in a market have the following costs:
 
-Refer to Table 7-12. If the sellers bid against each other for the right to sell the good to a consumer, then the good will sell for
A) $50 or slightly more. 
B) $100 or slightly less. 
C) $150 or slightly less. 
D) $200 or slightly more.

Quizplus · Accepted Answer

In this scenario, the good will sell at the price where the marginal cost of the highest-cost producer equals the marginal cost of the second-highest-cost producer (since only the two highest-cost producers will have positive profits at this price).

The two highest-cost producers are B and C, so we need to look at their costs. The marginal cost of B is $50 (the cost of producing the 7th unit), and the marginal cost of C is $100 (the cost of producing the 14th unit). Therefore, the good will sell for $100 or slightly less (since the highest bidder may not bid the full amount of their cost).

The other answer choices are either too high or too low because they assume that the highest-cost producer (D) is also actively bidding, which is not the case in this scenario.

Table 7-12 The Only Four Producers in a Market Have the Following