The optimal allocation of resources occurs when
A. the production of the two goods is equal
B. the marginal benefit of the good equals the marginal cost
C. the marginal benefit of the good is greater than the marginal cost
D. the marginal cost of producing the good is equal to zero
Answer (2)
Optimal allocation of resources happens when the marginal benefit equals the marginal cost.
This ensures resources are used efficiently, balancing value and production cost.
When marginal benefit exceeds marginal cost, production should increase.
The correct answer is: the marginal benefit of the good equals the marginal cost.
Explanation
Understanding the Question The question asks us to identify the condition under which resources are optimally allocated. This involves understanding the relationship between marginal benefit and marginal cost in economics.
Analyzing the Options Let's analyze each option:
Option 1: the production of the two goods is equal This is not necessarily true. Optimal allocation depends on the preferences and costs associated with each good, not just equal production.
Option 2: the marginal benefit of the good equals the marginal cost This is a fundamental principle in economics. Optimal allocation occurs when the marginal benefit (MB) of a good equals its marginal cost (MC). This ensures that resources are used efficiently, as the value derived from the last unit produced is equal to the cost of producing it.
Option 3: the marginal benefit of the good is greater than the marginal cost If MB > MC, it means that society values the good more than the cost to produce it, so more of the good should be produced to reach the optimal allocation.
Option 4: the marginal cost of producing the good is equal to zero This is not generally true. While it might be desirable to have zero marginal cost, it's not a condition for optimal allocation. Optimal allocation focuses on equating marginal benefit and marginal cost, regardless of whether the marginal cost is zero or not.
Determining the Correct Condition Based on the analysis, the optimal allocation of resources occurs when the marginal benefit of a good equals its marginal cost.
Final Answer Therefore, the correct answer is:
The optimal allocation of resources occurs when the marginal benefit of the good equals the marginal cost.
Examples
Imagine you're deciding how many hours to study for an exam. The marginal benefit is the improvement in your grade you expect from each additional hour of studying. The marginal cost is the value of the next best activity you could be doing instead, like sleeping or working. If the marginal benefit of studying (e.g., a 5% grade increase) is greater than the marginal cost (e.g., feeling a little tired), you should study more. The optimal amount of studying is reached when the marginal benefit equals the marginal cost – at that point, you've allocated your time efficiently to maximize your grade without sacrificing too much of other valuable activities.
The optimal allocation of resources happens when the marginal benefit of a good equals its marginal cost, ensuring efficient use of resources. When this balance is achieved, no more benefit can be gained without increasing costs. Hence, the correct answer is that marginal benefit equals marginal cost.
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