When a competitive market is in equilibrium, what is the economically efficient level of output? A. any output level where marginal cost is greater than marginal benefit B. any output level where marginal benefit is greater than marginal cost C. the output level where marginal cost is equal to marginal benefit D. All of the above.

Question

Gilbert Hodge

Business

16 November, 14:12

When a competitive market is in equilibrium, what is the economically efficient level of output? A. any output level where marginal cost is greater than marginal benefit B. any output level where marginal benefit is greater than marginal cost C. the output level where marginal cost is equal to marginal benefit D. All of the above.

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Answers (1)

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Daniella Morrow · Answer 1

The correct answer is C. the output level where marginal cost is equal to marginal benefit.

Explanation:

Competitive equilibrium Traditional concept of economic equilibrium used for the analysis of goods markets with flexible prices and many agents, which usually serve as a benchmark for efficiency in economic analysis. Crucially, it depends on the assumption of a context in which each agent makes decisions about such a small amount compared to the total amount traded in the market that their individual transactions have no influence on prices.

It consists of a price system and an allocation of the production and consumption of the economy among the various agents, such that, given the prices, each agent maximizing its objective function (benefits, preferences) subject to restrictions (technological, of resources) plans to trade its share in the proposed allocation, at prices that make all exchanges compatible with each other by balancing the markets, that is, matching the aggregate supply with the demand aggregate of each of the goods and services traded.