Graph 7-4
-In Graph 7-4, the efficient price-quantity combination is:
A)P₁ - Q₁
B)P₂ - Q₂
C)P₃ - Q₁
D)none of the combinations are efficient

Question

Graph 7-4 
-In Graph 7-4, the efficient price-quantity combination is:
A)P₁ - Q₁ 
B)P₂ - Q₂ 
C)P₃ - Q₁ 
D)none of the combinations are efficient

Quizplus · Accepted Answer

The efficient price-quantity combination is the point where marginal cost (MC) intersects with marginal benefit (MB), which is P₂ - Q₂ in this graph. This point represents the optimal allocation of resources because at this point the consumer surplus (the value consumers place on a good minus the price paid) is maximized and the producer surplus (the price received minus the cost of production) is also maximized, while the deadweight loss (the loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved) is minimized. Therefore, P₂ - Q₂ is the best choice.

Graph 7-4 -In Graph 7-4, the Efficient Price-Quantity Combination Is