Final answer:
When marginal benefit equals marginal cost, the market achieves allocative efficiency, maximizing economic welfare. This happens in a perfectly competitive market where firms produce at the point where price equals marginal cost, ensuring social costs are in line with the benefits to consumers.
Step-by-step explanation:
When marginal benefit equals marginal cost, the market is allocatively efficient and is therefore maximizing economic welfare. Allocative efficiency occurs when resources are distributed in a way that the benefits to consumers, as measured by the price they are willing to pay for an additional unit of a good or service (their marginal benefit), is exactly equal to the costs to society of producing that additional unit (the marginal cost).
In the context of a perfectly competitive market, firms that maximize their profits by producing the quantity where the price (P) equals the marginal cost (MC), also ensure that the benefits to consumers are equal to the social costs of production. This situation reflects a socially optimal point of production where the economic welfare of society as a whole is maximized because resources are allocated to produce the right mix and quantity of goods and services according to consumer preferences and resource costs.