Use the following figure to answer the question : Figure 20-1 : D 1 and S 1 are the private demand and supply curves,of a commodity produced by a competitive firm.S 2 reflects the social marginal cost of production,while S 0 represents the external marginal cost.
-From Figure 20-1,we can infer that the efficient output is:
A)900 units.
B)500 units.
C)400 units.
D)600 units.

Question

Use the following figure to answer the question : Figure 20-1 : D 1 and S 1 are the private demand and supply curves,of a commodity produced by a competitive firm.S 2 reflects the social marginal cost of production,while S 0 represents the external marginal cost. 
-From Figure 20-1,we can infer that the efficient output is:
A)900 units. 
B)500 units. 
C)400 units. 
D)600 units.

Quizplus · Accepted Answer

The efficient output is where social marginal cost (S₂) intersects with private demand (D₁). At this point, the social marginal cost equals the marginal benefit to society. However, if external marginal cost (S₀) is present, the efficient output decreases to where social marginal cost intersects with the social benefit curve (which is equivalent to private demand plus external benefits). In this case, the efficient output is where S₂ intersects with the social benefit curve, which occurs at 400 units. Therefore, the answer is C) 400 units.

Use the Following Figure to Answer the Question : Figure