OPTION 2: The Cheesiest: Consider a competitive market for cheese, with two producers and four consumers. Neither firm has any fixed costs. The table shows marginal production costs and marginal values for various customers. Firm 1 MC 2 4 6 8 Firm 2 MC 1 4 7 10 Unit 1 2 3 4 MV 1 10 8 6 4 1. Sketch the situation using a demand and supply framework. MV 2 12 2 MV 3 11 9 7 5 MV 4 4 3 2 1

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Chapter1: Making Economics Decisions
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OPTION 2: The Cheesiest: Consider a competitive market for cheese, with two producers and
four consumers. Neither firm has any fixed costs. The table shows marginal production costs and
marginal values for various customers.
Firm 1 MC Firm 2 MC
2
1
4
6
8
4. TRUE or FALSE
4
7
10
5. TRUE or FALSE
Unit
1
2
3
4
1. Sketch the situation using a demand and supply framework.
6. TRUE or FALSE
MV 1
10
8
6
4
MV 2
12
2
MV 3
11
9
7
5
2. What quantity of cheese is sold at what price?
3. What is the total value of cheese traded. What is the "market value (money exchanged) of cheese
traded? What is the cost of producing said cheese? What is the total surplus generated?
MV 4
4
3
2
1
Consumer surplus value would increase if prices were capped at $4
Producer surplus value would increase if a minimum price was set at $10
If the world demand is perfectly elastic at $10, then total surplus would increase
7. Suppose Firm A and Firm B merge and decide that rather than compete they want to maximize
profits! They do this by setting price! What price do they charge? What quantity do they sell? Do
their profits go up? What happens to consumer surplus value? What happens to total surplus
generally?
Transcribed Image Text:OPTION 2: The Cheesiest: Consider a competitive market for cheese, with two producers and four consumers. Neither firm has any fixed costs. The table shows marginal production costs and marginal values for various customers. Firm 1 MC Firm 2 MC 2 1 4 6 8 4. TRUE or FALSE 4 7 10 5. TRUE or FALSE Unit 1 2 3 4 1. Sketch the situation using a demand and supply framework. 6. TRUE or FALSE MV 1 10 8 6 4 MV 2 12 2 MV 3 11 9 7 5 2. What quantity of cheese is sold at what price? 3. What is the total value of cheese traded. What is the "market value (money exchanged) of cheese traded? What is the cost of producing said cheese? What is the total surplus generated? MV 4 4 3 2 1 Consumer surplus value would increase if prices were capped at $4 Producer surplus value would increase if a minimum price was set at $10 If the world demand is perfectly elastic at $10, then total surplus would increase 7. Suppose Firm A and Firm B merge and decide that rather than compete they want to maximize profits! They do this by setting price! What price do they charge? What quantity do they sell? Do their profits go up? What happens to consumer surplus value? What happens to total surplus generally?
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