Multiple Choice
Which of the following in the marketplace is a rough measure of how society values certain goods and services?
85
views
5. Consumer and Producer Surplus; Price Ceilings and Floors
Consumer Surplus and Willingness to Pay
Multiple Choice
A firm will purchase a resource if:
A
the resource is scarce, regardless of its price
B
the resource is supplied by a monopolist
C
the price of the resource is greater than the firm's willingness to pay for it
D
the price of the resource is less than or equal to the firm's willingness to pay for it
Verified step by step guidance1
Understand the concept of a firm's willingness to pay (WTP) for a resource, which represents the maximum price the firm is ready to pay based on the additional benefit or revenue the resource can generate.
Recognize that a firm will only purchase a resource if the cost (price) of the resource does not exceed the benefit it expects to gain, meaning the price must be less than or equal to the firm's willingness to pay.
Note that scarcity of a resource or the presence of a monopolist supplier does not guarantee purchase; these factors affect market conditions but do not override the firm's cost-benefit decision.
Formally, the purchase condition can be expressed as: \(\text{Price} \leq \text{Willingness to Pay}\), ensuring the firm does not pay more than the value it derives from the resource.
Conclude that if the price exceeds the firm's willingness to pay, the firm will not purchase the resource, as it would lead to a loss or negative profit contribution.
Related Videos
Related Practice
