Use the figure below to answer the following questions.

Figure 16.2.1
-Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then at the equilibrium output the marginal social cost of production is
A)less than the marginal benefit to consumers.
B)greater than the marginal benefit to consumers.
C)equal to the marginal benefit to consumers.
D)equal to the marginal private cost of production.
E)less than the marginal private cost of production.

Question

Use the figure below to answer the following questions.
  
Figure 16.2.1
-Refer to Figure 16.2.1.The figure shows the private marginal cost curve,the social marginal cost curve and the market demand curve.If the market is unregulated,then at the equilibrium output the marginal social cost of production is
A)less than the marginal benefit to consumers. 
B)greater than the marginal benefit to consumers. 
C)equal to the marginal benefit to consumers. 
D)equal to the marginal private cost of production. 
E)less than the marginal private cost of production.

Quizplus · Accepted Answer

At the equilibrium output, the marginal social cost (MSC) is equal to the market demand curve. However, the marginal social cost curve (MSC) is above the marginal private cost curve (MPC). This means that the cost to society of producing one more unit of the good is higher than the cost to the individual firm producing the good. Therefore, the MSC is greater than the marginal private cost (MPC). Since the equilibrium output is where the MSC equals the market demand curve, this implies that the marginal social cost is greater than the marginal benefit to consumers, therefore, the answer is (B).

Use the Figure Below to Answer the Following Questions