Economic inefficiency exists when
A) P = MR.
B) P = MC.
C) MR = MC.
D) P MC.

Question

Economic inefficiency exists when
A) P = MR.
B) P = MC.
C) MR = MC.
D) P > MC.

Quizplus · Accepted Answer

Economic inefficiency exists when price (P) is greater than marginal cost (MC), indicating that resources are being underutilized and that the economy is not operating at the optimal level of efficiency. When P > MC, it means that the benefit to society from producing an additional unit of a good or service is less than the cost. This results in a loss of surplus, and resources are not being allocated efficiently.

Economic Inefficiency Exists When