Using the concepts of marginal social benefit and marginal social cost, explain how the optimal combination of goods can be determined in an economy that produces only two goods.

Question

Mathematics

Ernesto Patton

6 December, 00:32

Using the concepts of marginal social benefit and marginal social cost, explain how the optimal combination of goods can be determined in an economy that produces only two goods.

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Frank Bennett · Answer 1

Optimal combination of goods can be determined in an economy that produces only two goods, with production of extra units of the two goods at a minimal marginal social cost. The consumption of the additional units of the two goods being produced will be benefitted by the consumers. This is known as marginal social benefit.

Step-by-step explanation:

Marginal social cost is the change in society's total cost brought about by the production of an additional unit of a good or service. It includes both marginal private cost and marginal external cost.

Marginal social benefit is the change in benefits associated with the consumption of an additional unit of a good or service. It is measured by the amount people are willing to pay for the additional unit of a good or service.