Allocative efficiency is achieved when the marginal benefit of a good
A) exceeds the marginal cost regardless of how much the difference is.
B) is less than its marginal cost.
C) is equal to its marginal cost.
D) equals zero.
E) exceeds the marginal cost by as much as possible.

Question

Quizplus · Accepted Answer

Allocative efficiency is achieved when the marginal benefit equals the marginal cost. This is because producing and consuming one more unit of the good will result in no net gain or loss to society. If the marginal benefit exceeds the marginal cost, then society would benefit from producing more of the good. If the marginal cost exceeds the marginal benefit, then society would benefit from producing less of the good. Therefore, only when the marginal benefit is equal to the marginal cost is allocative efficiency achieved.

Allocative Efficiency Is Achieved When the Marginal Benefit of a Good