Final answer:
The socially optimal quantity is where the price equals the marginal cost, leading to an efficient allocation of resources and benefiting both consumers and societal interests.
Step-by-step explanation:
The socially optimal quantity is the one where the price (P) charged for a product is equal to the marginal cost (MC) of producing it. At this point, societal benefits from purchasing the good meet societal costs of producing it, leading to an efficient allocation of resources. Therefore, when a regulator sets a price equal to the marginal cost and mandates the production of a quantity where the marginal cost crosses the demand curve, it assures a higher quantity and lower price for consumers, as well as benefitting the broader social interest. The scenario described where the output is 8 and the price is 3.5, matching the marginal cost, is an example of an efficient resource allocation and represents the socially optimal choice.