Assume a firm purchases resources a and b under purely competitive conditions and combines these resources to produce X.Product X is sold in a purely competitive market.The MPs of a and b are 6 and 3 respectively and the prices of a and b are $12 and $6 respectively.If equilibrium exists,the price of X will be:
A) $1.
B) $.50.
C) $2.
D) $5.

Question

Quizplus · Accepted Answer

In a competitive market, resources are allocated efficiently, meaning the price of product X will reflect the cost of resources a and b based on their marginal products (MP) and prices. The MP of a is 6 with a price of $12, and the MP of b is 3 with a price of $6. This means the cost per unit of output for a is $12/6 = $2, and for b is $6/3 = $2. Since both resources contribute equally to the cost of producing X, the price of X in equilibrium will be the sum of these costs, which is $2 + $2 = $4. However, since the question implies the combination of a and b produces one unit of X, the correct interpretation is that the total cost per unit of X is $2, reflecting the efficient market allocation of resources a and b.

Assume a Firm Purchases Resources a and B Under Purely