Consider an ordinary rivalrous good,provided in a competitive market.At the socially optimal level of provision of this good,the marginal
A)cost of production of this good is zero.
B)cost of production of the last unit of the good is equal to the consumers' marginal willingness to pay.
C)sacrifice society needs to make to supply the last unit of the good is more than each consumer's marginal willingness to pay.
D)cost of production of the last unit of the good is more than all consumers' combined marginal willingness to pay.
E)cost of production of the last unit of the good is equal to all consumers' combined marginal willingness to pay.

Question

Quizplus · Accepted Answer

At the socially optimal level of provision, the marginal cost of production of the last unit of the good is equal to the consumers' marginal willingness to pay. This is because the marginal benefit of the last unit to society is equal to the marginal cost of producing that unit. Any lower amount of production would result in unfulfilled demand, while any higher amount of production would result in a cost higher than the benefit. Therefore, at the socially optimal level, the market achieves allocative efficiency, where the price (which is equal to the marginal cost) reflects the true value of the good to society.

Consider an Ordinary Rivalrous Good,provided in a Competitive Market