Macroeconomics: Principles, Problems, & Policies 20th Edition

Published by McGraw-Hill Education
ISBN 10: 0-07766-077-3
ISBN 13: 978-0-07766-077-2

Chapter 1 - Limits, Alternatives and Choices - Discussion Questions: 9

Answer

MB and MC curves are typically bowed out from the origin. This reflects the increasing marginal costs. The optimal allocation of resources is where MB = MC.

Work Step by Step

If MC exceeds MB, then less resources should be allocated to the product. This is because it costs the firm a lot to produce the good, whereas consumers are only buying a small quantity of the good. In this way, firms are facing a loss when MC exceeds MB.
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