Figure 10-5
-Refer to Figure 10-5. Which price and quantity combination represents the social optimum?
A) P0 and Q1.
B) P2 and Q1.
C) P1 and Q0.
D) P2 and Q0.

Question

Figure 10-5 
-Refer to Figure 10-5. Which price and quantity combination represents the social optimum?
A) P0 and Q1. 
B) P2 and Q1. 
C) P1 and Q0. 
D) P2 and Q0.

Quizplus · Accepted Answer

The social optimum is where marginal social benefit (MSB) equals marginal social cost (MSC). This occurs at Q1, and the corresponding price is P2. At this point, both consumer surplus and producer surplus are maximized, and there is no deadweight loss. Therefore, the combination of P2 and Q1 represents the social optimum.

Figure 10-5 -Refer to Figure 10-5. Which Price and Quantity Combination Represents