allocative efficiency occurs only at that output where,

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multi-tasking, efficiency, manager @ Pixabay

The concept of allocative efficiency is a central tenet in microeconomics. It states that, if market forces are left to operate freely on the demand and supply curves for a good or service, resources will be distributed among industries in such a way as to maximize total economic welfare. In other words, goods and services should be produced where the marginal social cost equals the marginal social benefit (or where MC=MB). This blog post discusses how this principle can apply to your business when you’re deciding what products or services you want to offer. Allocative efficiency occurs only at that output where, The marginal social cost equals the marginal social benefit. At all other outputs there is misallocation of resources and a loss in economic welfare. MSC measures costs to society (including environmental impacts) from producing one more unit of product or service; MB evaluates benefits received by society for each additional unit produced. The intersection point between these two curves determines which level of production provides maximum aggregate welfare as measured by total net benefits over time.* *Source: Wikipedia This blog post discusses how this principle can apply to your business when you’re deciding what products or services you want to offer. You should produce goods and services wherever the MC=MB because it maximizes total economic welfare and

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