If marginal benefit is equal to marginal cost, then the
A) producer surplus is equal to the consumer surplus.
B) deadweight loss is more than zero but less than its maximum.
C) market has squeezed out total surplus so that it equals zero.
D) sum of producer surplus and consumer surplus is as large as possible.
E) sum of producer surplus and consumer surplus equals zero.

Question

Quizplus · Accepted Answer

When marginal benefit is equal to marginal cost, the market achieves allocative efficiency. At this point, the sum of consumer and producer surplus is as large as possible. Therefore, option D is correct. Option A is incorrect because the equality of marginal benefit and marginal cost does not necessarily mean that producer surplus and consumer surplus are equal. Option B is incorrect as achieving allocative efficiency means a zero deadweight loss. Option C is incorrect because it is impossible for the market to squeeze out total surplus. Finally, option E is incorrect because achieving allocative efficiency means that the sum of producer and consumer surplus is positive, not zero.

If Marginal Benefit Is Equal to Marginal Cost, Then the