A firm has a constant marginal social cost of producing of $2Q

Marketing Jan 12, 2021

A firm has a constant marginal social cost of producing of $2Q. What is the socially efficient level of production for a firm facing an inverse demand P=60-2Q?

Expert Solution

The socially efficient level of production is where the marginal social cost is equal to the marginal benefit, i.e., the demand function. Thus the socially optimal level of production is the solution to the following equation:

2Q = 60 - 2Q
4Q = 60
Q = 15

That is, the socially optimal level of production is 15.

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