The optimal allocation of resources occurs when ______.

• A. income is distributed equally among all individuals
• B. resources are allocated so that marginal benefit equals marginal cost
• C. firms maximize their profits regardless of consumer preferences
• D. all goods are produced at the lowest possible cost

Answer: (B)

Verified step by step guidance

1. Understand the concept of optimal allocation of resources: it refers to the most efficient distribution of resources where the benefits of using resources are maximized relative to their costs.
2. Recall the principle that optimal allocation occurs when the marginal benefit (MB) of a resource equals its marginal cost (MC). This means the value gained from the last unit of resource used is exactly equal to the cost of using that unit.
3. Recognize that equal income distribution or firms maximizing profits without regard to consumer preferences do not necessarily lead to optimal resource allocation, as they may ignore efficiency or consumer welfare.
4. Note that producing all goods at the lowest possible cost is important but does not alone guarantee optimal allocation, because it must also consider the benefits derived from those goods.
5. Conclude that the condition for optimal allocation is when \(\text{Marginal Benefit} = \text{Marginal Cost}\), ensuring resources are used where they provide the greatest net benefit.