A firm is producing an output such that the benefit from one more unit is more than the cost of producing that additional unit. This means the firm is

A) producing more output than allocative efficiency requires.
B) producing less output than allocative efficiency requires.
C) achieving productive efficiency.
D) producing an inefficient output, but we cannot say whether output should be increased or decreased.

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Breanna Nicolle · Accepted Answer

Final Answer : B, Explanation :  If the benefit (marginal benefit) from producing one more unit of output is greater than the cost (marginal cost) of producing that additional unit, the firm is producing less output than what would be considered allocatively efficient. Allocative efficiency is achieved when the marginal cost of producing an additional unit equals the marginal benefit derived from that unit.

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