If the firm was regulated to produce at the socially optimal output

If the firm was regulated to produce at the socially optimal output ( producer’s surplus is at its maximum), how much would the firm produce?

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Expert Solution

As we know, a socially optimal output is established at that point where the firm produces the output level which is given by the equality between the price level and the marginal cost. So we can say that the condition for the social optimal output is price equal to the marginal cost, and the socially optimal output is produced under the perfect competition where the producer surplus and the consumer surplus are maximum because there is no deadweight weight loss under the social optimal output. Therefore, the firm should produce that output where price equal to the marginal cost.

Rahul Sunny answered 1 year ago

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