If, in a competitive market, marginal benefit is less than marginal cost, which of the following statements are correct? The net benefit to consumers from participating in the market is less than the net benefit to producers. There is a deadweight loss in the market. The quantity sold is less than the equilibrium quantity. The quantity sold is greater than the equilibrium quantity.
Question
If, in a competitive market, marginal benefit is less than marginal cost, which of the following statements are correct?
The net benefit to consumers from participating in the market is less than the net benefit to producers.
There is a deadweight loss in the market.
The quantity sold is less than the equilibrium quantity.
The quantity sold is greater than the equilibrium quantity.
Solution
There is a deadweight loss in the market.
The quantity sold is greater than the equilibrium quantity.
In a competitive market, the equilibrium is reached when marginal benefit equals marginal cost. If marginal benefit is less than marginal cost, it means that the cost of producing an additional unit of a good or service is greater than what consumers are willing to pay for it. This results in overproduction and a deadweight loss, which is the loss of economic efficiency. Also, the quantity sold is greater than the equilibrium quantity because producers are producing more units than consumers are willing to buy at the current price.
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