When a perfectly competitive firm weighs price and marginal cost and no externalities exist, it is weighing the full benefits to ________ of additional production against the full costs to ________ of that production.
A) society; society
B) buyers; sellers
C) sellers; buyers
D) government; government

Question

Quizplus · Accepted Answer

In a perfectly competitive market without externalities, the price reflects the value to buyers (society's benefit) and the marginal cost reflects the cost to sellers (society's cost). Therefore, when a firm weighs price against marginal cost, it is comparing the full benefits to society against the full costs to society.

When a Perfectly Competitive Firm Weighs Price and Marginal Cost