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Figure: Market Failure
-(Figure: Market Failure) Look at the figure Market Failure. Suppose it represents the demand for and marginal cost per pound of shrimp in the bay. The additional cost of the shrimp due to the depletion of the common resource is equal to AC. The output of F is _____ because the marginal social benefit is _____ the marginal cost.
A) efficient; equal to
B) efficient; greater than
C) inefficient; greater than
D) inefficient; less than

Question

Use the following to answer questions:
Figure: Market Failure 
-(Figure: Market Failure) Look at the figure Market Failure. Suppose it represents the demand for and marginal cost per pound of shrimp in the bay. The additional cost of the shrimp due to the depletion of the common resource is equal to AC. The output of F is _____ because the marginal social benefit is _____ the marginal cost.
A) efficient; equal to 
B) efficient; greater than 
C) inefficient; greater than 
D) inefficient; less than

Quizplus · Accepted Answer

The output of F is inefficient because the marginal social benefit is greater than the marginal cost, indicating a market failure due to the depletion of the common resource.

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