Question

The additional benefit of producing one more roast beef sandwich at a local deli is $2. The additional cost of producing one more roast beef sandwich is $3. To improve allocative efficiency: producers should produce at least one more roast beef sandwich because MB > MC. producers should produce at least one more roast beef sandwich because MC > MB. producers should not produce one more roast beef sandwich because MB > MC. producers should not produce one more roast beef sandwich because MC > MB.

Answer 1

The correct answer is: producers should not produce one more roast beef sandwich because MC > MB.

Step-by-step explanation:

In the given question, the additional benefit or marginal of producing one more unit of a sandwich is $2. The marginal cost or additional cost of producing a sandwich is $3.

To improve allocative efficiency the producers should not produce one more unit as the marginal cost incurred in the production process is higher than the marginal benefit earned.

The most efficient level of output will be the point where marginal benefit and marginal cost are equal. As long as the marginal benefit is higher than the cost the firms should keep increasing production to maximize profit.