A Competitive Market with No Externalities Is Efficient When It

question 56

Multiple Choice

A competitive market with no externalities is efficient when it is in equilibrium because

• A) total benefit equals total cost.
• B) marginal benefit equals marginal cost.
• C) consumer surplus equals producer surplus.
• D) the sum of consumer surplus plus producer surplus is minimized.
• E) the deadweight gain equals its maximum.

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Definitions:

Marginal Output

The additional output produced as a result of using one more unit of a particular input while keeping other inputs constant.

Variable Costs

Costs that change in proportion to the level of output or business activity.

Total Revenue

The overall income generated by a firm from its sales activity, calculated as the quantity sold multiplied by the selling price.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.