Figure: Social Benefit Refer to the figure. Which price and quantity combination represents the efficient equilibrium? A) P₁ and Q₁ B) P₂ and Q₁ C) P₃ and Q₁ D) P₂ and Q₂

Question

Quizplus · Accepted Answer

The efficient equilibrium occurs where the marginal social benefit (MSB) equals the marginal social cost (MSC). In the diagram, this occurs at a price of P₂ and a quantity of Q₂. This is the optimal point because it maximizes the total surplus of society (the sum of consumer surplus and producer surplus) and minimizes deadweight loss. Choice A, B, and C are not efficient because they either produce more or less than the optimal quantity.

Figure: Social Benefit Refer to the Figure