FIGURE 16- 1
-Refer to Figure 16- 1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC2 and MB0,respectively,then the competitive equilibrium quantity is

Question

FIGURE 16- 1 
-Refer to Figure 16- 1.Suppose that the perfectly competitive market with no government intervention achieves equilibrium at point A.If the social marginal costs and social marginal benefits are represented by MC2 and MB0,respectively,then the competitive equilibrium quantity is

Quizplus · Accepted Answer

The competitive equilibrium quantity at point A is Q1, which is where the demand and supply curves intersect. However, at this quantity, the social marginal cost (MC2) is higher than the social marginal benefit (MB0), indicating that there is overproduction and resources are being allocated inefficiently. Therefore, the competitive equilibrium quantity is too high for allocative efficiency.