Answer :
Final answer:
The socially optimal output in the salad dressing market is 8, where the marginal social cost intersects the demand curve at a price of 3.5; the market-determined output is not provided explicitly in the information supplied.
Explanation:
The question pertains to the concepts of free-market equilibrium and socially optimal output in the context of market regulation. The socially optimal output is the point where the marginal social cost (MSC) of producing a good equals the marginal social benefit (MSB), which typically includes consideration of externalities that are not accounted for in the market price.
In the given scenario, regulation set by authorities attempts to align the market outcome with social optimality. From the information provided, it is indicated that the socially optimal output occurs at an output of 8, where the marginal social cost crosses the demand curve, and the corresponding price is 3.5.
The market-determined output, in a scenario without regulation, would typically be at the intersection of the supply and demand curves, which is not explicitly stated in the provided information and would need to be determined from a graph which is not present. For the sake of the exercise detailed in the question, the final answer in two lines is that the socially optimal output is 8 and the market-determined output has not been provided.
