Refer to the accompanying table,where Q represents the quantity produced,internal cost and external cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities.

The social optimum occurs where price is ________ and quantity is ________.

Question

Refer to the accompanying table,where Q represents the quantity produced,internal cost and external cost are given for various quantities,and P represents the price consumers are willing to pay for various quantities.

The social optimum occurs where price is ________ and quantity is ________.

Quizplus · Accepted Answer

The social optimum occurs where marginal social benefit (MSB) is equal to marginal social cost (MSC). In this case, the MSB can be found by looking at the price consumers are willing to pay, which is given in the P column. The MSC can be found by adding the internal cost and external cost columns together. 
At a quantity of 3, the MSB is $10 and the MSC is $10, making this the social optimum. Therefore, the answer is choice C, where price is $10 and quantity is 3. This represents the point where society produces and consumes the optimal amount of the good, taking into account both the benefits to consumers and the costs to society.

Refer to the Accompanying Table,where Q Represents the Quantity Produced,internal