Refer to Figure 15-6. What is the socially efficient price and quantity in a market where the demand curve intersects the marginal cost curve at a price of \$10 and a quantity of 50 units?

• A. Price = \$12; Quantity = 30 units
• B. Price = \$10; Quantity = 50 units
• C. Price = \$8; Quantity = 60 units
• D. Price = \$15; Quantity = 40 units

Answer: (B)

Verified step by step guidance

1. Understand that the socially efficient price and quantity occur where the demand curve intersects the marginal cost (MC) curve. This is because at this point, the value consumers place on the good (demand) equals the cost of producing an additional unit (MC), leading to an efficient allocation of resources.
2. Identify from the problem that the demand curve intersects the marginal cost curve at a price of \$10 and a quantity of 50 units. This intersection point represents the socially efficient outcome.
3. Recall that the socially efficient quantity is where marginal social benefit (MSB), which equals demand in this case, equals marginal social cost (MSC), which equals marginal cost here. So, set \(\text{Demand} = \text{MC}\) at the given price and quantity.
4. Confirm that any other price and quantity combination (such as \$12 and 30 units\(, \)8 and 60 units\(, or \)15 and 40 units\() does not satisfy the condition \)\text{Demand} = \text{MC}$, and thus are not socially efficient.
5. Conclude that the socially efficient price is \$10 and the socially efficient quantity is 50 units, as this is the point where the market maximizes total social welfare.