If a production quota is set below the equilibrium quantity, at the quota quantity marginal benefit is _______ marginal cost and the level of production is _______.

Question

Quizplus · Accepted Answer

At the quota quantity, marginal benefit is greater than marginal cost because the demand (benefit) still exceeds the supply (cost) at that point, indicating that more of the good could be produced and consumed to increase overall welfare, making the level of production inefficient.

If a Production Quota Is Set Below the Equilibrium Quantity