Suppose that an economy is producing on its production possibilities curve but i

Question

Suppose that an economy is producing on its production possibilities curve but is not producing quantities of each good where the marginal beneft equals the marginal cost for each good. This economy Multiple Choice can improve its allocation by producing more of one good and less of the other can improve its allocation by producing more of both goods can improve its alocation by lowering the unemployment rate shourd not change ts production beceuse t connot improve ts eiocat by shifting esources.

Explanation / Answer

Answer: 4th option

The condition (MB = MC) is not allocation efficiency, rather (P = MC) is such efficiency of production. Perfect competitive firms will achieve this efficiency, which is a dynamic adjustment. Therefore, although there is no equality of MB and MC a firm can still achieve the maximum efficiency since it is on the PPC. No more shifting is possible for better allocation.

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