Figure 10-5

-Refer to Figure 10-5.Which price and quantity combination represents the social optimum for this market
A)P₁ and Q₁
B)P₂ and Q₁
C)P₂ and Q₂
D)P₃ and Q₁

Question

Figure 10-5
 
-Refer to Figure 10-5.Which price and quantity combination represents the social optimum for this market
A)P₁ and Q₁ 
B)P₂ and Q₁ 
C)P₂ and Q₂ 
D)P₃ and Q₁

Quizplus · Accepted Answer

The social optimum occurs where the marginal social benefit (MSB) equals the marginal social cost (MSC), which is represented by the intersection of the demand curve and the marginal cost (MC) curve. This occurs at point E in the graph, where P₂ and Q₂ are the price and quantity combination that represents the social optimum for this market. At this point, the market is efficient and allocates resources optimally, maximizing total surplus.

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