The figure below shows the marginal benefit to consumers,MB,the marginal cost to private firms,MCP,and the marginal cost to society,MCS,at each level of output of some good.
FIGURE 17-1
-Refer to Figure 17-1.The socially optimal level of output is

Question

The figure below shows the marginal benefit to consumers,MB,the marginal cost to private firms,MCP,and the marginal cost to society,MCS,at each level of output of some good.
  FIGURE 17-1
-Refer to Figure 17-1.The socially optimal level of output is

Quizplus · Accepted Answer

The socially optimal level of output is where MB=MCS. This occurs at Q2, where the green line intersects with the blue line. At this level of output, the total surplus (consumer surplus + producer surplus) is maximized, and resources are being used efficiently. At Q1, the private market produces too little of the good, resulting in a deadweight loss, while at Q3, the private market produces too much, also resulting in a deadweight loss. Therefore, the socially optimal level of output is Q2.

The Figure Below Shows the Marginal Benefit to Consumers,MB,the Marginal