In a competitive market, the amount of a good produced is such that social surplus is:
A) minimized.
B) zero.
C) hidden.
D) maximized.

Question

Quizplus · Accepted Answer

In a competitive market, firms are motivated by profit maximization. As such, they will produce the quantity of the good that maximizes their profits. This quantity is where marginal cost equals marginal revenue. At this quantity, the market price will also be equal to the marginal cost, resulting in the maximum possible social surplus. Therefore, in a competitive market, the amount of a good produced is such that social surplus is maximized.

In a Competitive Market, the Amount of a Good Produced