Question

In an efficient market? outcome,

A. marginal benefit is greater than marginal cost (MB > MC)
B. consumers buy only products and services when marginal benefit is less than price.
C. total surplus is the lowest.
D. marginal benefit equals marginal cost (MB = MC).

Answer 1

In an efficient market outcome, the condition that represents allocative efficiency is where the marginal benefit equals the marginal cost (MB = MC). This reflects the balance of societal costs and benefits and is consistent with profit maximization in perfectly competitive firms.

Step-by-step explanation:

In an efficient market outcome, the ideal situation is where the marginal benefit equals the marginal cost (MB = MC). This occurs because in a market where firms are operating under perfect competition, each firm maximizes its profits by producing at the quantity where the price (P) it receives for its product equals the marginal cost (MC) of production. This not only ensures profit maximization for the firm but also achieves allocative efficiency for society, meaning that the value consumers place on a good (the price they're willing to pay) equals the cost to society of making the last unit of that good (the marginal cost).