Suppose the economy is producing at a point on its production possibilities curve where the marginal benefit of an additional unit of housing is $70,000 while the marginal cost of an additional unit of housing is $78,000. In this instance:

Question

Quizplus · Accepted Answer

Since the marginal cost of producing an additional unit of housing exceeds its marginal benefit, the production of housing should decrease. This means that the resources that are currently being utilized to produce housing could be more efficiently allocated to the production of other goods and services that yield a higher marginal benefit relative to their marginal cost.

Suppose the Economy Is Producing at a Point on Its