A factory produces widgets and the marginal cost of producing one more widget is $5, while the marginal benefit derived from selling that widget is $7. Which category best describes this situation?

In this situation, we can see that the marginal benefit of selling one more widget is higher than the marginal cost of producing it. The marginal cost is $5, which is what it costs the factory to make one additional widget. However, the factory can sell that widget for $7, giving it a profit of $2 for each extra widget produced. This means that the factory should continue to produce more widgets because it is gaining more benefit than it is spending. Overall, this scenario illustrates a situation where it is socially optimal to produce more since the benefits outweigh the costs.