Perfectly competitive markets maximize the sum of producer and consumer surplus.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the price of the good is set at the equilibrium point where marginal cost equals marginal revenue. This results in a situation where consumers pay a price equal to the marginal benefit they receive from consuming the good and producers receive a price equal to their marginal cost of production. This maximizes the total combined welfare of consumers and producers, which is equal to the sum of producer and consumer surplus. Therefore, it is true that perfectly competitive markets maximize the sum of producer and consumer surplus.

Perfectly Competitive Markets Maximize the Sum of Producer and Consumer