To determine how much of a good to produce to achieve allocative efficiency,we
A) construct a production possibilities frontier and choose the midpoint.
B) construct a production possibilities frontier and choose any point on it.
C) must produce on the PPF and at the point where the marginal benefit and marginal cost of the good are equal.
D) must produce on the PPF and at the point where the marginal benefit exceeds by any amount the marginal cost of the good.
E) must produce on the PPF and at the point where the marginal benefit exceeds by as much as possible the marginal cost of the good.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when marginal benefit (MB) equals marginal cost (MC). Therefore, to achieve allocative efficiency, the production of the good must be at the point on the production possibilities frontier (PPF) where MB=MC. This ensures that resources are allocated efficiently, producing the optimal amount of the good. Choosing any other point would result in inefficient use of resources and would not achieve allocative efficiency. Thus, option C is the correct choice.

To Determine How Much of a Good to Produce to Achieve