Which of the following is necessary for allocative efficiency to be achieved?
A) Marginal benefit must be maximized.
B) Marginal cost must be minimized.
C) Marginal benefit must equal marginal cost.
D) The difference between marginal benefit and marginal cost must be maximized.
E) Production must be at a point inside the production possibilities frontier.

Question

Quizplus · Accepted Answer

Allocative efficiency is achieved when the marginal cost is equal to the marginal benefit. This means that the last unit produced provides the same benefit to society as the cost of producing it. At this point, there is no way to reallocate resources to make society better off. Therefore, marginal benefit must equal marginal cost for allocative efficiency to be achieved. Choice A and B only focus on one side of the equation and do not necessarily result in allocative efficiency. Choice D is incorrect because maximizing the difference between the two would lead to overproduction, which is not efficient. Choice E is not relevant to the concept of allocative efficiency.

Which of the Following Is Necessary for Allocative Efficiency to Be