Figure 10-10 -Refer to Figure 10-10. the Socially Optimal Quantity of Output

question 158

Multiple Choice

Figure 10-10
-Refer to Figure 10-10. The socially optimal quantity of output is

• A) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by the seller of the 120^th unit.
• B) 120 units, since the value to the buyer of the 120th unit is equal to the cost incurred by society of the 120^th unit.
• C) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by the seller of the 160th unit.
• D) 160 units, since the value to the buyer of the 160th unit is equal to the cost incurred by society of the 160^th unit.

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Definitions:

Diminishing Returns

The principle stating that as one factor of production is increased while others are held constant, a point will eventually be reached where additions of the factor yield progressively smaller increases in output.

Value Added

The increase in worth of a product or service as a result of a particular stage of production or as it moves through the supply chain.

Marginal Product

The increase in output resulting from a one-unit increase in the amount of a single input used, keeping all other inputs constant.

Premium

A premium is the amount paid for an insurance policy, representing the price for the insurance coverage or the amount over the nominal value of something.