If the production cost of the firm allows it,the regulatory policy that leads to the maximum total economic surplus is one that sets the production level where price equals
A) total cost.
B) average fixed cost.
C) marginal cost.
D) marginal revenue.
E) marginal profit.

Question

Quizplus · Accepted Answer

Setting the production level where price equals marginal cost leads to the maximum total economic surplus because it ensures that the firm is producing the optimal amount of output where the benefit to society (measured by price) equals the cost to society (measured by marginal cost). This results in allocative efficiency and maximizes total surplus. The other options (total cost, average fixed cost, marginal revenue, and marginal profit) do not take into account the societal cost of production and therefore may not lead to the optimal level of output.

If the Production Cost of the Firm Allows It,the Regulatory