When P = MC = minimum ATC for individual firms, in the entire market:

• A. Consumer surplus is larger than producer surplus
• B. Producer surplus is larger than consumer surplus
• C. Supply and demand are the same
• D. Total surplus is at a maximum

Answer: (D)

Verified step by step guidance

1. Understand the concept of total surplus, which is the sum of consumer surplus and producer surplus. It represents the total net benefit to society from the production and consumption of goods.
2. Recognize that when price (P) equals marginal cost (MC) and also equals the minimum average total cost (ATC), the firm is operating at an efficient scale. This is a condition of perfect competition where firms produce at the lowest possible cost.
3. Recall that consumer surplus is the difference between what consumers are willing to pay and what they actually pay, while producer surplus is the difference between what producers receive and their costs of production.
4. In a perfectly competitive market, when P = MC = minimum ATC, the allocation of resources is efficient, meaning that the quantity of goods produced is optimal for maximizing total surplus.
5. Conclude that at this point, total surplus is maximized because the market is in equilibrium, where supply equals demand, and resources are allocated in the most efficient way possible, benefiting both consumers and producers.