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Industry Policy - Efficiency
Surplus lost to society as a result of producing less than the allocative efficient amount     Suppose an amount less than the allocatively efficient amount is produced, say QU shown to the right. If that amount is available for purchase, SMB = PU, while SMC = MCU. Since SMB > SMC the value to society of one more unit (PU) is much greater than the social cost of producing one more unit (MCU).

    The yellow shaded area represents surplus lost to society as a result of only producing QU rather than QAE.

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