Figure 10-5

-Refer to Figure 10-5.Which price and quantity combination represents the social optimum?
A)P₀ and Q₁.
B)P₂ and Q₁.
C)P₁ and Q₀.
D)P₂ and Q₀.

Question

Figure 10-5
 
-Refer to Figure 10-5.Which price and quantity combination represents the social optimum?
A)P₀ and Q₁. 
B)P₂ and Q₁. 
C)P₁ and Q₀. 
D)P₂ and Q₀.

Quizplus · Accepted Answer

The social optimum occurs where the marginal social benefit (MSB) equals the marginal social cost (MSC). This occurs at point Q₁ where the demand curve intersects with the MSC curve. At this point, the price is P₂ which represents the socially optimal price. Therefore, the correct answer is B.

Figure 10-5 -Refer to Figure 10-5.Which Price and Quantity Combination Represents the Quantity