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 ________.
A) greater than; inefficient
B) greater than; efficient
C) less than; inefficient
D) equal to; efficient

Question

Quizplus · Accepted Answer

When a production quota is set below the equilibrium quantity, the marginal benefit of the last unit produced is greater than the marginal cost, leading to an inefficient level of production because not enough of the good is being produced to meet demand at the equilibrium price.

If a Production Quota Is Set Below the Equilibrium Quantity