ECON 1010H Chapter Notes - Chapter 2: Marginal Utility, Marginal Cost, Allocative Efficiency
Document Summary
The production possibility frontier is the boundary between those combination of goods and services that can be produced and those that cannot because of scarcity . Production efficiency - producing goods and services at the lowest possible cost. It is a ratio and the outward-bowed shape of the ppf reflects increasing opportunity cost and because resources are not all equally productive in all activities. We achieve production efficiency at every point on the ppf but allocative efficiency is when the goods and service are produced at the lowest cost possible and in quantities that provide the greatest possible benefit. Marginal cost of goods is the opportunity cost of producing one more unit of it. Marginal cost can be calculated from the slope of ppf. Marginal benefit from a good or services is the benefit received from consuming one more unit of it. It depends on what people wants/preferences and is unrelated to the ppf and cannot be derived from it.
