Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
The socially optimal quantity occurs where marginal social cost equals marginal social benefit.
B
Marginal analysis is only relevant in perfectly competitive markets.
C
When marginal benefit exceeds marginal cost, it indicates that additional production will increase overall welfare.
D
Marginal analysis helps in determining allocative efficiency by identifying the intersection of marginal cost and demand.
E
Social optimality is achieved without considering externalities.
Understanding the Answer
Let's break down why this is correct
Answer
Marginal analysis is a method used to evaluate the additional benefits and costs of a decision. It helps individuals or businesses determine the best course of action by comparing what they gain from an extra unit of something to what they must give up. Social optimality, on the other hand, refers to a situation where resources are allocated in the most efficient way for society as a whole, maximizing overall welfare. In this context, marginal analysis can help identify the point at which the benefits of an action equal its costs, which is crucial for achieving social optimality. For example, if a factory considers producing one more unit of a product, it would use marginal analysis to decide if the profit from that unit justifies the costs, contributing to a more efficient allocation of resources in the community.
Detailed Explanation
Other options are incorrect because This statement is incorrect; Many think marginal analysis only applies to perfect markets.
Key Concepts
Marginal Analysis
Social Optimality
Allocative Efficiency
Topic
Marginal Analysis and Social Optimality
Difficulty
medium level question
Cognitive Level
understand
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