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 MCs intersects MB, which occurs at Q2. This point takes into account the external costs imposed by the production of the good and maximizes overall societal welfare. Anything below Q2, such as Q1, results in a deadweight loss (inefficiency) because the benefit to consumers exceeds the cost of production. Anything above Q2, such as Q3, results in overproduction of the good and imposes external costs on society that are not accounted for by private firms. Therefore, the socially optimal level of output is Q2.

The Figure Below Shows the Marginal Benefit to Consumers, MB