Author Question: What are the constraints that a firm faces? How does each constraint limit the firm's profit? ... (Read 115 times)

ap345 · **on:** Jun 29, 2018

What are the constraints that a firm faces? How does each constraint limit the firm's profit?

What will be an ideal response?

Question 2

When every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it, ________ occurs.

A) efficient central planning B) equity
C) productive efficiency D) allocative efficiency

cuttiesgirl16 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The three types of constraints a firm faces are technology constraints, information constraints, and market constraints. Technology is any specific method of producing a good or service and it advances over time. Using the available technology, the firm can produce more only if it hires more resources, which will increase its costs and limit the profit of additional output. Information is never complete, for the future or the present. A firm is constrained by limited information about the quality and effort of its work force, current and future buying plans of its customers, and the plans of its competitors. The cost of coping with limited information itself limits profit. Market constraints mean that what each firm can sell and the price it can obtain are constrained by its customers' willingness to pay and by the prices and marketing efforts of other firms. The resources that a firm can buy and the prices it must pay for them are limited by the willingness of people to work for and invest in the firm. The expenditures a firm incurs to overcome these market constraints will limit the profit the firm can make.

Answer to Question 2

D