An underallocation of resources in an industry means that for the last unit produced,

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An underallocation of resources in an industry means that the industry is producing fewer units than the socially optimal level. This implies that the demand price for the last unit produced exceeds the marginal cost of producing it. If the cost of producing the last unit exceeded its value to society, then the industry would not produce that unit, and there would not be an underallocation of resources. Economic profit may or may not be rising for the last unit produced, depending on the market structure of the industry. The value that society places on the resources required to produce the last unit is not relevant to the underallocation of resources. Long-run average cost is also not relevant to the production decision for the last unit.

An Underallocation of Resources in an Industry Means That for the Last