The achievement of the optimal allocation of society's scarce resources requires that regulators set prices equal to firms marginal cost.

Question

Quizplus · Accepted Answer

When prices are set equal to firms' marginal cost, it ensures that resources are allocated efficiently and that there is no deadweight loss. This is because at the point where price equals marginal cost, producers are producing the amount that is most efficient for society, and consumers are willing to pay exactly the cost of producing each unit of the good or service. Therefore, there are no unexploited gains from trade, and all available gains from trade have been realized. This is the goal of achieving an optimal allocation of resources.

The Achievement of the Optimal Allocation of Society's Scarce Resources