Consider the market demand and supply for eggs. Assume that the market for eggs is perfectly competitive. Suppose that egg produ
cers organize themselves and establish a system of quotas. Each farmer's output is restricted by a specified amount of egg that he can produce.
1 answer:
Answer:
The quota system is not efficient since the total supply is less than the equilibrium quantity. This will produce a deadweight loss which equals the lost supplier surplus plus the lost consumer surplus. The deadweight loss s the area between the demand and supply curve, and between the imposed quota and the equilibrium quantity.
Graph 1 shows the market equilibrium while graph 2 shows the deadweight loss.
You might be interested in
Answer: As the firm produces more of a good, the cost of producing each additional unit increases this implies that the marginal cost of producing a good increases as it makes more of that good.
Explanation: Marginal cost of a producer refers to the addition in total cost when one more unit of a good is produced.
It is given by
Refers to the following situations,
MC increases when adding output increases TC or Total Cost
MC decreases when adding output decreases TC
MC remains constant when adding output does not change TC
The supply curve of the firm is an upward sloping curve, which shows that quantity increases as price increases.
So, in relation to this, it means that MC will also increase as quantity increases.