Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Evaluate marginal cost → Set price equal to marginal cost → Monitor consumer surplus → Adjust price if necessary
B
Determine maximum profit price → Analyze demand elasticity → Set price above marginal cost → Ignore consumer surplus
C
Calculate average total cost → Set price based on historical data → Ensure equal producer and consumer surplus → Maintain price stability
D
Assess fixed costs → Set price lower than average total cost → Focus on increasing usage → Evaluate competitor pricing
Understanding the Answer
Let's break down why this is correct
Answer
To achieve allocative efficiency in pricing for a bridge, a municipality should first determine the true cost of building and maintaining the bridge, including construction, maintenance, and operational expenses. Next, it should assess the demand for using the bridge, understanding how many people would be willing to pay to cross it. After gathering this information, the municipality can set a price that reflects both the cost of providing the service and the value that users place on it. For example, if the cost per vehicle crossing is $2 and the demand shows that drivers are willing to pay up to $4, setting the price at $3 would balance costs and demand effectively. This way, the bridge can cover its expenses while still being accessible to users, leading to allocative efficiency.
Detailed Explanation
To achieve allocative efficiency, the price should match the marginal cost. Other options are incorrect because This option suggests setting a price for maximum profit, which can ignore what people are willing to pay; Calculating average total cost does not focus on the current demand.
Key Concepts
Allocative Efficiency
Marginal Cost Pricing
Consumer and Producer Surplus
Topic
Allocative Efficiency and Pricing
Difficulty
medium level question
Cognitive Level
understand
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