What is maximized in a competitive market when marginal benefit equals marginal cost?

In a competitive market, the condition where marginal benefit equals marginal cost is crucial for achieving an efficient allocation of resources. This point is significant because it indicates that the resources in the economy are being used in such a way that the last unit of output produced provides a level of benefit to consumers that is equal to the cost incurred to produce that unit.

When marginal benefit equals marginal cost, it maximizes economic surplus, which is the sum of consumer surplus and producer surplus. Economic surplus is a measure of the total welfare or net benefit to society from the production and consumption of goods and services. By maximizing economic surplus, the market ensures that resources are allocated in a way that reflects the preferences and valuations of consumers and producers.

At this equilibrium, both consumers and producers are satisfied—the consumers are receiving goods up to the point where they value them just as much as it costs to create them, and producers are producing up to the point where their costs are covered by the revenue generated from sales. Therefore, the concept is central to understanding market efficiency and welfare economics in a competitive context.