If there is a market outcome in which the marginal benefit to consumers of the last...

If there is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production, and consumer surplus plus producer surplus is maximized, then A) maximum deadweight loss occurs. B) economic efficiency is achieved. C) profits are maximized. D) costs are minimized.

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Expert Solution

Answer: B) Economic efficiency is achieved.
Reason: Economic efficiency occurs when we can not make one person better off without making someone else worse off (Pareto Efficiency/Optimality). In a competitive market, when the marginal benefit curve (demand curve) is equal to the marginal cost curve (supply curve) and by the way of it an economic surplus (consumer and producer surplus are maximised) is reached, an equilibrium price is set and that's how economic efficiency is achieved.
Inefficiency occurs if competitive equilibrium is not achieved. Suppose:
If the price is lower and marginal benefit (demand) is greater than marginal cost (supply)- Inefficiency in the form of shortage occurs. Consumer surplus is seen to be at maximum.
If the price is higher, the marginal benefit (demand) dampened than marginal cost (supply)- inefficiency in the form of surplus occurs. Producer surplus is seen to be at increase.

Rahul Sunny answered 1 year ago

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