Question

The marginal benefit of an additional beach towel is $12. the marginal cost of producing an additional beach towel is $8. if producers are minimizing the average costs of production, then we can conclude:

Answer 1

We can conclude that beach towel production is not allocatively efficient but is productively efficient. The explanation will be producing at a minimum of average costs is productively efficient, but it is not allocatively efficient. The latter requires marginal cost = marginal benefit.