Analyzing Production Inefficiency
A custom bicycle manufacturer determines that the cost to build one more of their high-end models is $2,500. They have found a customer who is willing to pay $2,800 for this exact bicycle. However, the manufacturer decides not to produce this additional unit. Explain why this decision is considered economically inefficient and identify the nature of the unrealized gain.
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CORE Econ
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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A specialty car manufacturer finds that the cost to produce one additional vehicle is $45,000. At the current production level, the highest price any potential new customer is willing to pay for that additional vehicle is $40,000. From an economic efficiency standpoint, what is the consequence of producing this additional vehicle?
Determining Efficient Production for a Luxury Boat Manufacturer
Analyzing Production Inefficiency
A company that manufactures custom-built drones stops production at a quantity where the last drone sold went to a customer willing to pay $1,200, while the cost to produce that specific drone was $900. This production level represents a Pareto efficient outcome because all units produced were sold to customers who valued them more than their cost.
A company produces high-end artisanal guitars. The marginal cost to produce each guitar is a constant $2,000. Match each production scenario below with its correct economic description regarding efficiency.
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In a market for a specific good, producing an additional unit is considered economically inefficient if the cost to create that unit is ________ than the maximum price any remaining consumer is willing to pay for it.
A company wants to determine the most economically efficient number of custom-built bicycles to produce. The cost to produce each additional bicycle is known, and the company has a list of potential customers and the maximum price each is willing to pay. Arrange the following steps in the correct logical order to find the production quantity that ensures no potential gains from trade are missed and no units are produced at a loss.
Two firms are deciding their optimal production levels for similar high-end products. The cost to produce one additional unit is $5,000 for both firms.
- Firm A stops production after selling a unit to a customer whose maximum willingness to pay was exactly $5,000. No other potential customers are willing to pay $5,000 or more.
- Firm B stops production after selling a unit to a customer whose maximum willingness to pay was $5,200. The next potential customer is only willing to pay $4,800.
Based on this information, which firm(s) has/have stopped at a production level where all possible gains from trade have been realized?
Evaluating a Production Decision for a Boutique Watchmaker