Allocative efficiency is achieved when the marginal benefit of a good
A) equals zero.
B) is less than its marginal cost.
C) is equal to its marginal cost.
D) exceeds the marginal cost regardless of how much the difference is.
E) exceeds the marginal cost by as much as possible.

Question

Quizplus · Accepted Answer

Allocative efficiency is achieved when the marginal benefit (MB) of a good is equal to its marginal cost (MC). This means that the last unit consumed (or produced) of the good provides the same level of satisfaction (or cost) as the next best alternative. Any other level of production would result in either underallocation or overallocation of resources, which leads to a net loss in welfare. Therefore, choice C is the correct answer.

Allocative Efficiency Is Achieved When the Marginal Benefit of a Good