Assuming no externalities exist, if a good's price is less than its marginal cost, then the benefits consumers derive are
A) greater than the cost of resources needed to produce it and less should be produced.
B) greater than the cost of resources needed to produce it and more should be produced.
C) less than the cost of resources needed to produce it and less should be produced.
D) less than the cost of resources needed to produce it and more should be produced.

Question

Quizplus · Accepted Answer

When a good's price is less than its marginal cost, it indicates that the cost of producing an additional unit of the good is higher than what consumers are willing to pay for it. This suggests that the resources could be better utilized elsewhere, implying that less of the good should be produced.

Assuming No Externalities Exist, If a Good's Price Is Less