At an efficient equilibrium, MSB = MSC, which implies that Mπ = MEC.

Question

Quizplus · Accepted Answer

MSB (Marginal Social Benefit) is the additional benefit that society derives from an extra unit of production or consumption, while MSC (Marginal Social Cost) is the additional cost that society bears from an extra unit of production or consumption. When MSB = MSC, it means that the social benefits from the extra unit are equal to the social costs borne, and the equilibrium is efficient. This also implies that Mπ (Marginal Private Profit) is equal to MEC (Marginal External Cost), which means that the private benefits from the extra unit are equal to the costs imposed on others.

At an Efficient Equilibrium, MSB = MSC, Which Implies That