Selling a good at a price where the demand curve intersects the marginal-cost curve is consistent with which of the following? (i) the market solution with competitive firms
(ii) the market solution with monopoly firms
(iii) the socially optimal level of output

Question

Quizplus · Accepted Answer

Selling a good at a price where the demand curve intersects the marginal-cost curve is consistent with the socially optimal level of output. This is because at this point, the price reflects the true cost of producing the good and the market is operating efficiently. However, it is not consistent with the market solution with monopoly firms because a monopoly would choose to restrict output to increase profits. It is also not consistent with the market solution with competitive firms because in a perfectly competitive market, firms would produce at the point where price equals marginal cost, but not all firms may be able to cover their costs at that price point.

Selling a Good at a Price Where the Demand Curve