An allocation satisfies the output efficiency condition if:
A) for every pair of goods, every input's marginal product equals the marginal rate of transformation.
B) for every pair of goods, every consumer's marginal rate of substitution equals the marginal rate of transformation.
C) only applies for firms that produce the same product.
D) only applies for consumers that consume the same goods.

Question

Quizplus · Accepted Answer

Output efficiency condition requires the marginal rate of substitution (utility gain of one good relative to another) to be equal to the marginal rate of transformation (opportunity cost of one good relative to another). Therefore, option B is correct. Option A is incorrect because it deals with production, not consumption. Options C and D are incorrect because they are too narrow and do not apply to all situations.

An Allocation Satisfies the Output Efficiency Condition If