Figure 10-1
-Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are
A)$1.90 and 38 units, respectively.
B)$1.80 and 35 units, respectively.
C)$1.60 and 42 units, respectively.
D)$1.35 and 58 units, respectively.

Question

Figure 10-1 
-Refer to Figure 10-1. This graph represents the tobacco industry. The socially optimal price and quantity are
A)$1.90 and 38 units, respectively. 
B)$1.80 and 35 units, respectively. 
C)$1.60 and 42 units, respectively. 
D)$1.35 and 58 units, respectively.

Quizplus · Accepted Answer

The socially optimal price and quantity are where the marginal social benefit (MSB) equals the marginal social cost (MSC). This occurs at a price of $1.80 and a quantity of 35 units, as shown by the intersection of the MSB and MSC curves. At this point, the net benefit to society (the area between MSB and MSC up to the quantity of 35) is maximized. Any other price and quantity combination would result in a net loss to society.

Figure 10-1 -Refer to Figure 10-1. This Graph Represents the Tobacco Industry