Which of the following relationships most accurately describes the inefficiency resulting form government imposed production quotas? A) Marginal benefit exceeds marginal cost leading to overproduction. B) Marginal cost exceeds marginal benefit leading to overproduction. C) Marginal cost exceeds marginal benefit leading to underproduction. D) Marginal benefit exceeds marginal cost leading to underproduction.
D Although it seems the wording is a bit strange. MB>MC does not lead to under production, the quota leads to underproduction. So maybe I am wrong.
i will go with d) as well
D quotas limit production and therefore lead to underproduction, as a result marginal benefit exceeds marginal cost.
D it is!! If the quota is below the equilibrium quantity then this causes quantity supplied Q(s) to be less than quantity demanded Q(d) [Q(s) < Q(d) = underproduction] and MB > MC No effect if quota is above the equilibrium quantity. - Dinesh S