The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist. The socially optimal level of output is:
A)4 units per day.
B)5 units per day.
C)8 units per day.
D)10 units per day.

Question

The accompanying figure shows the demand curve, marginal revenue curve, marginal cost curve and average total cost curve for a monopolist.  The socially optimal level of output is:
A)4 units per day. 
B)5 units per day. 
C)8 units per day. 
D)10 units per day.

Quizplus · Accepted Answer

The socially optimal level of output occurs where the marginal benefit of an additional unit of output equals the marginal cost of an additional unit of output. The marginal benefit of an additional unit of output is the amount people are willing to pay for it, which is given by the demand curve.

The Accompanying Figure Shows the Demand Curve, Marginal Revenue Curve