Resources are considered to be misallocated when
A) the market is perfectly competitive.
B) price exceeds marginal cost.
C) the social value of an extra unit equals its social cost.
D) price is equal to average total cost at its lowest value.
E) economic profits are zero.

Question

Quizplus · Accepted Answer

When price exceeds marginal cost, it means that the production of an additional unit does not create social value equal to its social cost. This signals a misallocation of resources as society would be better off if those resources were directed towards producing goods and services that offer a higher social value compared to social cost ratio.

Resources Are Considered to Be Misallocated When