Chuggy wants to earn a high grade in his microeconomics class, but also loves going to parties and binge drinking. The first graph illustrates Chuggy's PPF. The second graph denotes his MB curve from binge drinking. What is Chuggy's economics grade when he achieves allocative efficiency?

• A. 60 percent
• B. 70 percent
• C. 76 percent
• D. 82 percent
• E. 85 percent

Answer: (C)

Verified step by step guidance

1. Understand that allocative efficiency occurs where the marginal benefit (MB) equals the marginal cost (MC). In this context, the MB curve represents Chuggy's willingness to pay in terms of grade points for each additional hour of binge drinking.
2. Identify the points on the PPF graph, which shows the trade-off between binge drinking hours and economics grade. The PPF curve represents the maximum possible grade Chuggy can achieve for each level of binge drinking.
3. Determine the marginal cost (MC) of binge drinking in terms of grade points lost per additional hour of binge drinking. This is the slope of the PPF curve at any given point.
4. Find the point on the PPF where the slope (MC) equals the slope of the MB curve. This is the point of allocative efficiency.
5. At this point of allocative efficiency, check the corresponding economics grade on the PPF graph. This is the grade Chuggy achieves when he allocates his time efficiently between studying and binge drinking.