If the marginal utility of a gallon of milk to consumers is $2.50 and the MC of producing the gallon of milk is $1.50, then
A)the value of the resources used up in producing one more gallon of milk would be $1 less than the money value of the additional gallon to consumers.
B)society could be made better off by expanding the output of milk.
C)resources are not being used most efficiently.
D)All of the above are true.

Question

Quizplus · Accepted Answer

A) Since the marginal benefit of the gallon of milk is $2.50 and the marginal cost of producing the gallon is $1.50, the additional value to consumers is $1. Therefore, the value of resources used up in producing one more gallon of milk would be $1 less than the money value of the additional gallon to consumers.
B) If the marginal benefit of a gallon of milk is greater than the marginal cost, expanding production would increase social welfare and increase the overall value of society's resources.
C) The fact that there is a positive net benefit to society suggests that resources are not being allocated most efficiently. This indicates that fewer resources are being used than what society could benefit from.

If the Marginal Utility of a Gallon of Milk to Consumers