Asked by Suman Chahal on Jul 23, 2024
Verified
If the price of product Y is $25 and its marginal cost is $18,
A) Y is being produced with the least-cost combination of resources.
B) society will realize a net gain if less of Y is produced.
C) resources are being underallocated to Y.
D) resources are being overallocated to Y.
Marginal Cost
The enhanced cost due to the creation of one more unit of a product or service.
Least-Cost Combination
is an economic principle where firms seek to produce a given level of output at the minimum cost by choosing the optimal mix of inputs or factors of production.
- Analyze the conditions for least-cost production and resource allocation.
Verified Answer
AA
Arlyn Arredondo-PedrozaJul 29, 2024
Final Answer :
C
Explanation :
The price of a product reflects the value that consumers place on the last unit of the product they purchase, while the marginal cost reflects the cost of producing one more unit of the product. If the price ($25) is higher than the marginal cost ($18), it indicates that the value consumers place on the product is greater than the cost of producing it, suggesting that more resources could be profitably allocated to its production. Therefore, resources are being underallocated to Y.
Learning Objectives
- Analyze the conditions for least-cost production and resource allocation.