Figure: Model of a Competitive Market
(Figure: Model of a Competitive Market) Given the figure Model of a Competitive Market, if there are no external benefits or costs, the output at Q will be:
A)larger than is socially desirable.
B)smaller than is socially desirable.
C)efficient.
D)inefficient.

Question

Quizplus · Accepted Answer

In a competitive market with no external benefits or costs, the market equilibrium output is efficient because the marginal cost equals the marginal benefit, and there is no external influence affecting the market. This means that the output level Q is socially desirable and efficient. Option A is incorrect because an output level larger than Q would imply that the marginal cost is greater than the marginal benefit, leading to inefficiency. Option B is incorrect because an output level smaller than Q would imply that the marginal benefit is greater than the marginal cost, leading to inefficiency. Option D is incorrect because an output level that is not socially optimal is considered inefficient.