Allocative Efficiency Occurs When

question 117

Multiple Choice

Allocative efficiency occurs when

• A) marginal benefit exceeds marginal cost.
• B) opportunity costs are decreasing.
• C) we cannot produce more of any one good without giving up some other good.
• D) we cannot produce more of any good without giving up some other good that we value more highly.

---

Definitions:

Profitability Index

A calculation used to determine the relative profitability of an investment, computed by dividing the present value of future cash inflows by the initial investment cost.

Payback Technique

A method of evaluating investments by determining the length of time it will take to recoup the original investment amount.

NPV

Net Present Value, a calculation that discounts future cash flows to their present value to evaluate the profitability of an investment or project.

Resource Constraint

Limitations on the availability of resources such as time, money, and labor that can restrict project progress or business growth.