If the value that consumers place on the 100th unit of chocolate is $5, and the value of the resources used to produce that 100th unit is $2, to achieve an efficient allocation of resources
A) a $3 externality associated with chocolate production must be generated
B) a $3 externality associated with chocolate production must be eliminated
C) less resources should be allocated to chocolate production
D) more chocolate should be produced
E) less chocolate should be produced

Question

Quizplus · Accepted Answer

To achieve an efficient allocation of resources, production should continue until the value consumers place on a product equals the cost of the resources used to produce it. Since consumers value the 100th unit of chocolate at $5, which is higher than the production cost of $2, producing more chocolate would move towards an efficient allocation of resources by utilizing resources valued less by consumers for production until the marginal benefit equals the marginal cost.

If the Value That Consumers Place on the 100th Unit