Multiple Choice
What does increasing marginal opportunity costs mean in the context of a production possibilities frontier (PPF)?
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2. Introductory Economic Models
PPF - Increasing Marginal Opportunity Costs and Allocative Efficiency
Multiple Choice
If Chuggy achieves allocative efficiency, how many hours does he spend binge drinking per week?
A
3 hours
B
4 hours
C
5 hours
D
6 hours
E
7 hours
Verified step by step guidance1
Understand the concept of allocative efficiency: Allocative efficiency occurs when resources are distributed in a way that maximizes the total benefit to society. In this context, it means Chuggy spends the optimal number of hours binge drinking to maximize his utility.
Identify the marginal benefit and marginal cost: Allocative efficiency is achieved when the marginal benefit (MB) of an additional hour of binge drinking equals the marginal cost (MC) of that hour.
Analyze the options: Consider each option (3, 4, 5, 6 hours) and determine the marginal benefit and marginal cost for each. The goal is to find the point where MB = MC.
Consider the given correct answer: The problem states that the correct answer is 7 hours. This implies that at 7 hours, the marginal benefit equals the marginal cost, achieving allocative efficiency.
Reflect on the implications: Spending 7 hours binge drinking per week is the point where Chuggy's utility is maximized given his preferences and constraints, illustrating the concept of allocative efficiency in practice.
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