Final answer:
By opting to produce less than the equilibrium quantity, the value buyers place on the last unit produced exceeds the production cost, indicating the market is not at maximum total surplus.
Step-by-step explanation:
If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then the correct answer is (b) the value placed on the last unit of production by buyers exceeds the cost of production. This is because by producing less than the equilibrium quantity, the planner is not allowing the market to reach a point where supply equals demand, which is where total surplus is maximized. At any quantity below the equilibrium, some consumers value the product more than it costs to produce. Therefore, they would have been willing to pay a higher price than the actual cost of the last unit produced, indicating that the value they place on this unit exceeds the cost of production.
Consumer surplus and producer surplus, when combined, make up the social surplus, also referred to as total surplus. The total surplus is largest at the equilibrium quantity and price, which reflects the efficient allocation of resources in the economy. Producing less than the equilibrium quantity typically implies that there is a deadweight loss since potential gains from trade are not being fully realized.