Exhibit 7-1
-Refer to Exhibit 7-1. If Firm A is producing 5 units and Firm B is producing 3 units, then
A)both firms should produce more because there is no way only 8 units could fulfill demand in a market.
B)Firm A should produce more and Firm B should produce less.
C)if Firm B reduced production by 1 unit, the savings would allow Firm A to produce 6 more units.
D)if Firm A reduced production by 1 unit, the savings would allow Firm B to produce 2 more units.
E)Pareto efficiency is achieved.

Question

Exhibit 7-1 
-Refer to Exhibit 7-1. If Firm A is producing 5 units and Firm B is producing 3 units, then
A)both firms should produce more because there is no way only 8 units could fulfill demand in a market. 
B)Firm A should produce more and Firm B should produce less. 
C)if Firm B reduced production by 1 unit, the savings would allow Firm A to produce 6 more units. 
D)if Firm A reduced production by 1 unit, the savings would allow Firm B to produce 2 more units. 
E)Pareto efficiency is achieved.

Quizplus · Accepted Answer

Without the specific details from Exhibit 7-1, the correct answer relies on understanding the concept of resource allocation and efficiency. Option D suggests a trade-off where Firm A's reduction in production allows Firm B to increase its production more efficiently, indicating an understanding of opportunity cost and the potential for improving overall efficiency or output in the system. This aligns with economic principles of reallocating resources to increase total production or efficiency.

Exhibit 7-1 -Refer to Exhibit 7-1. If Firm a Is Producing 5