If the price of bottled water is $2 and the marginal cost of producing it is $2.50,
A) bottled water is being produced in an increasing-cost industry.
B) society will realize a net gain if more bottled water is produced.
C) resources are being overallocated to bottled water.
D) resources are being underallocated to all other goods.

Question

Quizplus · Accepted Answer

Since the marginal cost of producing bottled water is higher than its price, it means that resources are being overallocated to bottled water production, and it is not profitable to produce more. Therefore, it would be optimal to allocate these resources to producing other goods that have a higher marginal benefit.

If the Price of Bottled Water Is $2 and the Marginal