At the output level defining allocative efficiency option (a) i.e, the maximum willingness to pay for the last unit of output equals the minimum acceptable price of that unit of output.
A state of the economy known as allocation efficiency is one in which production matches customer preferences; specifically, every good or service is produced up to the point where the final unit offers consumers a marginal benefit equal to the marginal cost of production.
When consumers pay a market price that reflects the private marginal cost of production, allocation efficiency is achieved. For a corporation to be allocatively efficient, its output must be produced with a marginal cost (MC) that is exactly equal to its price (P).
Utilizing allocative efficiency ensures that resources are allocated properly in light of customer requirements and preferences. Given that almost all resources (i.e., factors of production) are finite, it is crucial to choose wisely where to allocate them in order to maximize value.
The business is optimizing profits and benefiting more customers by increasing its output level. This results in specific allocative efficiency, which benefits both the producer and the consumer, in addition to economic efficiency.
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