The socially optimal price (P = MC) is socially optimal because: multiple choiceit achieves allocative efficiency.it minimizes ATC.it reduces the monopolist's profit.it yields a normal profit.
Question
The socially optimal price (P = MC) is socially optimal because: multiple choiceit achieves allocative efficiency.it minimizes ATC.it reduces the monopolist's profit.it yields a normal profit.
Solution
The socially optimal price (P = MC) is socially optimal because it achieves allocative efficiency.
Here's why:
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Allocative efficiency occurs when the price of the product (P) equals the marginal cost (MC) of production. This is also known as the condition P = MC.
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When this condition is met, it means that the resources are being used to produce and distribute goods in the most efficient way possible.
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This is because the price consumers are willing to pay for an additional unit of a good (reflected in P) is equal to the cost of producing that additional unit (reflected in MC).
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Therefore, no resources are wasted - all are used to produce goods that provide the maximum possible satisfaction to consumers.
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This is why the socially optimal price (P = MC) is socially optimal - it achieves allocative efficiency.
The other options do not accurately explain why P = MC is socially optimal. Minimizing ATC, reducing the monopolist's profit, or yielding a normal profit do not necessarily lead to allocative efficiency.
Similar Questions
The price that equals marginal cost of production is socially optimal because: multiple choiceit minimizes ATC.it achieves allocative efficiency.it yields a normal profit.it reduces a monopolist's profit.
The main problem with imposing the socially optimal price (P = MC) on a monopoly is that the socially optimal price: multiple choicemay be higher than the monopoly price.may be so low that the regulated monopoly can't break even.may cause the regulated monopoly to engage in price discrimination.
Multiple Choice QuestionProductive efficiency in monopolistically competitive markets does not occur in the long run because firms set the priceMultiple choice question.on the supply curve where MR=MC to maximize economic profit, making output more than optimal from society's perspective.on the supply curve where VC=MR to maximize economic profit, making output less than optimal from society's perspective.on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.on the demand curve where MR=ATC to maximize economic profit, making output more than optimal from society's perspective.
The profit-maximizing behaviour for a price-taking firm requires it to operate where:Multiple ChoiceP = TR = TC.P = MC = AVC.P = MC = AFC.P = MR = MC = AFC.
If in a market the last unit of output was sold at a price higher than marginal costGroup of answer choicesproducers are better off producing more.consumers are better off if less of the product is sold.social welfare is not maximised.the unit increased total profit.
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