The diagram below shows the demand and supply curves in a perfectly competitive market. FIGURE 12- 5
-Refer to Figure 12- 5. In the free- market equilibrium, producer plus consumer surplus is maximized and is illustrated by the area
A) 1 + 2 + 3 + 4.
B) P1P3E.
C) 1 + 2.
D) P1P2E.
E) P3P2E.

Question

The diagram below shows the demand and supply curves in a perfectly competitive market.  FIGURE 12- 5
-Refer to Figure 12- 5. In the free- market equilibrium, producer plus consumer surplus is maximized and is illustrated by the area
A) 1 + 2 + 3 + 4. 
B) P1P3E. 
C) 1 + 2. 
D) P1P2E. 
E) P3P2E.

Quizplus · Accepted Answer

Producer plus consumer surplus is maximized at the equilibrium quantity, where the marginal cost of production equals the marginal benefit of consumption. This is represented by the area P1P3E, which is the sum of producer surplus (area 1 + 2) and consumer surplus (area 3 + 4).

The Diagram Below Shows the Demand and Supply Curves in a Perfectly