The MSC curve is given by MSC=Q+2 → Set the MSC equal to the marginal so- cial benefit (in this case the MSB is the market demand curve) to find the so- cially optimal amount of the good. 30-Q=Q+2 → Q =14 is the socially optimal amount of the good.
Considering this, what is the socially optimal quantity?
Socially optimal is where P = MC and profit is maximised. This is the optimal distribution of resources in society, taking into account all external costs and benefits as well as internal costs and benefits. Social Efficiency occurs at an output where Marginal Social Benefit (MSB) = Marginal Social Cost (MSC).
Subsequently, question is, what is the socially optimal price of a monopoly? If a monopoly was regulated to produce at the socially optimal level of output, it would produce where the price (AKA demand) intersects the marginal cost curve (P=MC). At this level of output, allocative efficiency is achieved and there is no deadweight loss.
Herein, how do you find the socially optimal outcome?
Answer: To find the socially optimal amount of the good we need to set the market demand curve equal to the marginal cost curve. Here we assume that both the demand curve and the marginal cost curve include all the benefits and all the costs, respectively, that society faces with this good.
What is socially efficient?
Definition of social efficiency. This is the optimal distribution of resources in society, taking into account all external costs and benefits as well as the internal costs and benefits. Social efficiency occurs at an output where Marginal Social Benefit (MSB) = Marginal Social Cost (MSC).
12 Related Question Answers Found
What is socially optimal solution?
Economists define a “socially optimal solution” as “the optimal distribution of resources in society, taking into account all external costs and benefits as well as internal costs and benefits.”
Is zero pollution an optimal goal?
What is the optimal level of pollution? Most people would automatically give the answer that zero pollution would be optimal. However, the optimal level of pollution is not zero; instead, the optimal level is obtained by following our economic decision rule of equating the marginal benefit to the marginal cost.
What is a fair return price?
Term. Fair-Return Price. Definition. The price of a product that enables its producer to obtain a normal profit and that is equal to the average total cost of producing it.
What are positive externalities?
Positive Externalities. Definition of Positive Externality: This occurs when the consumption or production of a good causes a benefit to a third party. For example: When you consume education you get a private benefit. But there are also benefits to the rest of society.
What is marginal social benefit?
Marginal Social Benefit. Marginal social benefit is equal to the private marginal benefit a good provides plus any external benefits it creates. In other words, MSB gives the total marginal benefit of the good to society as a whole.
Why is the socially optimal price P Mc socially optimal?
The socially optimal price (P = MC) is socially optimal because: -It yields a normal profit. -It reduces the monopolist’s profit. -It achieves allocative efficiency.
What is a social cost of production?
Social cost includes these private costs and the additional costs (or external costs) associated with the production of the good for which are not accounted for by the free market. Mathematically, social marginal cost is the sum of private marginal cost and the external costs.
What do you mean by externalities?
An externality is an economic term referring to a cost or benefit incurred or received by a third party. However, the third party has no control over the creation of that cost or benefit. The costs and benefits can be both private—to an individual or an organization—or social, meaning it can affect society as a whole.
How are private benefits calculated?
Now we know that total private benefits at the market equilibrium are equal to a+b+c+e+f and we know that total private cost at the market equilibrium equals c+f. The market surplus at Q1 is equal to (total private benefits – total private costs), in this case, a+b+e. [(a+b+c+e+f) – (c+f)].
What is efficient quantity?
The efficient quantity of a good is the quantity that makes marginal benefit from the good equal to marginal cost of producing it. If marginal benefit exceeds marginal cost, resources use will be more efficiently if the quantity is increased.
How does the fair return price differ from the socially optimal price?
Social optimal price is the price in which the profit will be maximum. Fair return price is a better-controlled price which allows the monopoly to levy a price that is equal to the average total cost and that include the profit also.
Which of the following is an example of a public good?
A public good is a good that is both non-excludable and non-rivalrous. Examples of public goods include fresh air, knowledge, lighthouses, national defense, flood control systems, and street lighting. Streetlight: A streetlight is an example of a public good. It is non-excludable and non-rival in consumption.