The level of output where social cost equals social benefit and welfare is maximised is called

The level of output where social cost equals social benefit and welfare is maximised is called

• A. Socially Optimum Output
• B. Private Optimum Output
• C. Market Output
• D. Government Output

Answer: (A)

Welfare is maximised at the output level where the extra benefit to society from one more unit equals the extra cost to society of producing that unit. This is the point where marginal social benefit equals marginal social cost. At this level, any small increase or decrease in output would reduce overall welfare, so it’s the socially optimal quantity. This term is called socially optimum output. Private optimum would be where private marginal benefit equals private marginal cost, which can be different if there are externalities. Market output is simply what the market produces, often ignoring external effects, and government output isn’t a standard term in this context.

Welfare is maximised at the output level where the extra benefit to society from one more unit equals the extra cost to society of producing that unit. This is the point where marginal social benefit equals marginal social cost. At this level, any small increase or decrease in output would reduce overall welfare, so it’s the socially optimal quantity. This term is called socially optimum output.

Private optimum would be where private marginal benefit equals private marginal cost, which can be different if there are externalities. Market output is simply what the market produces, often ignoring external effects, and government output isn’t a standard term in this context.