If P = MC for all goods in a free-market economy, then

Question

Quizplus · Accepted Answer

In a free-market economy where P = MC for all goods, consumers will be incentivized to purchase the quantity of each good where the marginal utility (MU) is equal to the marginal cost (MC). This is because the consumer's goal is to maximize their total utility subject to their budget constraint. When the price of a good equals its marginal cost, the consumer is getting a fair value for that good and there is no opportunity cost associated with consuming it. Therefore, the consumer will continue purchasing the good until the marginal utility of that good is equal to its marginal cost, at which point any further purchases would have a higher opportunity cost than the utility gained.

If P = MC for All Goods in a Free-Market