Suppose a production possibilities frontier (PPF) graph shows points A, B, and C. Point B is where the marginal benefit equals the marginal cost of production. Which point is considered allocatively efficient?

• A. Point B
• B. Point A
• C. Point C

Answer: (A)

Verified step by step guidance

1. Understand that allocative efficiency occurs where the marginal benefit (MB) of producing a good equals the marginal cost (MC) of producing it. This means resources are allocated in a way that maximizes total benefit to society.
2. Identify the point on the production possibilities frontier (PPF) where MB = MC. According to the problem, this is point B.
3. Recall that points on the PPF represent efficient production levels, but only the point where MB = MC is allocatively efficient, as it balances the trade-off between producing different goods.
4. Recognize that points A and C, while possibly efficient in production, do not satisfy the condition MB = MC, so they are not allocatively efficient.
5. Conclude that point B is the allocatively efficient point because it equates marginal benefit and marginal cost, ensuring optimal resource allocation.