If a firm prices its output at marginal cost - the competitive solution - then the gains from trade are:
A) all in producer surplus.
B) split between producer and consumer surplus.
C) all in consumer surplus.
D) split in a Nash solution.

Question

Quizplus · Accepted Answer

When a firm prices its output at marginal cost, the price reflects the cost of producing an additional unit, maximizing consumer surplus as consumers pay the lowest possible price.

If a Firm Prices Its Output at Marginal Cost -