A student argues: "Economic surplus is greatest at the level of output where the difference between marginal benefit and marginal cost is largest." This statement is false because
A. the marginal benefit and marginal cost relationship has no relevance to economic surplus.
B. the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.
C. the level of output where the difference between marginal benefit and marginal cost is largest will also have the highest producer and consumer surplus.
D. the level of output where the difference between marginal benefit and marginal cost is largest will be above the output level needed to have the maximum economic surplus.
Answer: B. the level of output where the difference between marginal benefit and marginal cost is largest will be below the output level needed to have the maximum economic surplus.
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Nations specialize in production and engage in international trade in order to
A. protect domestic consumers and producers. B. improve transportation. C. increase employment. D. increase consumption and income.
A production possibilities curve is plotted for a nation producing cotton and jute. Which of the following will cause a parallel rightward shift of the production possibilities curve?
A) An invention of a new fertilizer that increases cotton production by ten percent, without any effect on jute production B) An invention of a new fertilizer that increases jute production by five percent, without any effect on cotton production C) An invention of a new fertilizer that increases production of both cotton and jute by ten percent D) A two-times increase in the price of all cotton products and a three-times increase in the price of all jute products