Question;11. Cost-effectiveness requires that resources are allocated such;that the additional benefits to society are equal to the additional costs.;12. Assume that the marginal revenue associated with the 12th;unit of output is $25 and the marginal cost is $14. As a result, the firm;should produce more, because the marginal profit at that output level is;greater than zero.;13. When a profit-maximizing firm increases output to Q = 50, its MR = $100 and MC = $124;meaning that total profit falls by $24, so the firm should contract production.;14. In perfect competition, the firm faces a perfectly inelastic;demand.;15. The demand faced by the perfectly competitive firm is perfectly;elastic, meaning that price and marginal revenue are equal.;16. If a market is perfectly competitive, allocative efficiency is;achieved at the point where the profit-maximizing firm produces.;17. If a firm maximizes output from a stock of available;resources, it must be achieving allocative efficiency.;18. Consumer surplus is the net gain to the firm measured as the;excess of price over the marginal cost of production summed over all units;sold.;19. If a consumer is willing to pay more for a good than he/she;actually must pay, he/she enjoys a gain for that unit of output known as;consumer surplus.;20. The sum of the change in consumer surplus plus the change in;producer surplus is called deadweight loss to society.
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