When the marginal benefit of an output exceeds the marginal cost?

1 answer:

7 0

Are there options to choice from?

Marginal benefit (MB) corresponds with the demand curve, and the marginal cost (MC) corresponds with the supply curve. The equilibrium point is where the demand curve intersects the supply curve. At this point, MB = MC, and allocative efficiency is met.

When there is allocative efficiency, there is no deadweight loss, and total market surplus is maximized. This means that consumers are paying less than the value they place on the good or service, while producers are charging more than their minimum price.

In order for allocative efficiency to be achieved, production needs to be increased. The demand curve has a negative slope, and the supply curve has a positive slope. So at some point after production is increased, MB will equal MC.

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