Figure 10-9
-Refer to Figure 10-9, Panel (c). The market equilibrium quantity is
A)Q4, which is the socially optimal quantity.
B)Q5, which is the socially optimal quantity.
C)Q4, and the socially optimal quantity is Q5.
D)Q5, and the socially optimal quantity is Q4.

Question

Figure 10-9   
-Refer to Figure 10-9, Panel (c). The market equilibrium quantity is
A)Q4, which is the socially optimal quantity. 
B)Q5, which is the socially optimal quantity. 
C)Q4, and the socially optimal quantity is Q5. 
D)Q5, and the socially optimal quantity is Q4.

Quizplus · Accepted Answer

The socially optimal quantity is the quantity where the marginal benefit equals the marginal cost. In this case, the marginal benefit is decreasing and the marginal cost is increasing. The socially optimal quantity is therefore Q5, where the marginal benefit equals the marginal cost. The market equilibrium quantity is Q4, where the quantity supplied equals the quantity demanded.