Figure 4-3 Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P1 and a quantity of Q1.Now suppose producers decide to cut output to Q2 in order to raise the price to P2.
-Refer to Figure 4-3.At the equilibrium price of P1,consumers are willing to buy Q1 pounds of granola.Is this an economically efficient quantity?

Question

Figure 4-3  Figure 4-3 shows the market for granola.The market is initially in equilibrium at a price of P1 and a quantity of Q1.Now suppose producers decide to cut output to Q2 in order to raise the price to P2.
-Refer to Figure 4-3.At the equilibrium price of P1,consumers are willing to buy Q1 pounds of granola.Is this an economically efficient quantity?

Quizplus · Accepted Answer

At the equilibrium price of P1, the market is efficient because this is where the marginal benefit (the willingness to pay) of the last unit equals the marginal cost of producing that last unit. Therefore, the market is producing the optimal quantity of Q1.

Figure 4-3 Figure 4-3 Shows the Market for Granola