Question

The efficient level of output is the level at which price of product is marginal social cost (MSC).

• A. more than
• B. lower than
• C. equal to
• D. uncertain

Hint:

The efficient output rule is \(P = MSC\). This means the value of the last unit equals its social cost.

Answer 1

The Correct Option is C

Concept: Efficient output occurs where the value consumers place on the last unit equals the social cost of producing that last unit.

Step 1: Understanding marginal social cost.
Marginal Social Cost is the total cost to society of producing one additional unit of a good. \[ MSC = \text{Private marginal cost} + \text{External cost} \]

Step 2: Understanding efficiency condition.
Efficiency is achieved when price equals marginal social cost. \[ P = MSC \] At this point, society is not overproducing or underproducing the good.

Step 3: Why other options are wrong.
If price is more than MSC, society may benefit from producing more.
If price is less than MSC, the good may be overproduced.
Therefore, the efficient condition is equality. Hence, the correct answer is equal to.