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The socially optimal point of production for a firm in a monopolisticly-competitive industry, or in a monopoly, or in an oligopoly is the point where the average cost curve (ATC) intersects the demand curve (or average revenue curve). At this point, the total profit of the monopoly is zero, so the point is said to be "socially optimal" as the firm does not retain any profits from its operation, and all the benefits of running the business are passed on to society.

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How can one determine the socially optimal quantity for a given product or service?

One can determine the socially optimal quantity for a product or service by finding the point where the marginal social benefit equals the marginal social cost. This means considering the benefits and costs to society as a whole, rather than just individual consumers or producers. By analyzing factors such as externalities, market failures, and public goods, policymakers can make decisions to achieve the socially optimal quantity.


How do externalities impact the determination of the socially optimal quantity in a market?

Externalities can affect the socially optimal quantity in a market by causing a divergence between private costs and social costs. When externalities are present, the market may produce more or less than the socially optimal quantity, leading to inefficiency. This can result in overproduction or underproduction of goods and services, which can have negative impacts on society as a whole.


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