Figure 5-3
-Refer to Figure 5-3.At the competitive market equilibrium,for the last unit produced

Question

Figure 5-3 
-Refer to Figure 5-3.At the competitive market equilibrium,for the last unit produced

Quizplus · Accepted Answer

At the competitive market equilibrium, the marginal private benefit (MPB) equals the marginal private cost (MPC), which is represented by the intersection of the supply and demand curves. However, the social optimum occurs where the marginal social benefit (MSB) equals the marginal social cost (MSC), which takes into account the external benefits and costs. The last unit produced in a competitive market equilibrium has a marginal social benefit (MSB) that is greater than its marginal private benefit (MPB) due to the presence of external benefits. The size of the external benefit is the difference between the MSB and the MPB, which is equal to P_m- P_o. Therefore, the correct answer is B.

Figure 5-3 -Refer to Figure 5-3.At the Competitive Market Equilibrium,for the Last