In a competitive market, the gains to society are maximized under which of the conditions described below by marginal benefit, marginal cost, producer surplus, and consumer surplus, respectively? A) $2.50; $2.50; $35; $35. B) $1.00; $1.00; $15; $15. C) $1.50; $1.50; $45; $30. Your answer: A was incorrect. The correct answer was C) $1.50; $1.50; $45; $30. In a competitive market, the efficient equilibrium quantity produced is the quantity where marginal benefit equals marginal cost and the sum of consumer and producer surplus is maximized. Q: Anyone can explain? Thanks.
Marginal cost must equal marginal benefit for the market to be in equilibrium. All three answers had MC = MB. Gains to society are maximized when the sum of consumer surplus and producer surplus is maximized. Thus, in C) $45 + $30 = $75 which is the max out of the three.
Thanks. Seems like a badly written question to me?