When the marginal cost of producing a bike is greater than the marginal benefit of the bike,for resource use to be allocatively efficient,
A) more bikes should be produced.
B) fewer bikes should be produced.
C) no more and no fewer bikes should be produced.
D) it must be determined if the production of bikes can be increased.
E) people must be educated to demand more bikes.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when marginal cost equals marginal benefit. If the marginal cost of producing a bike is greater than the marginal benefit, it means that the cost of producing an additional bike exceeds the benefit that society receives from it. Therefore, producing fewer bikes will be more allocatively efficient.

When the Marginal Cost of Producing a Bike Is Greater