In the above figure, when 2000 bicycles are produced each month, we can see that

Question

In the above figure, when 2000 bicycles are produced each month, we can see that the marginal benefit from another bicycle is greater than the marginal cost of another bicycle. more bicycles should be produced to reach the efficient level of output. the economy is very efficient at the production of bicycles because the marginal benefit exceeds the marginal cost. Both answers A and B are correct. Two countries, Alpha and Beta, have identical production possibilities frontiers. If Alpha produces at point a and Beta produces at point b, then_________. Alpha's and Beta's economic growth rates will be the same Beta's future consumption will be greater than Alpha's Beta's economic growth rate will exceed Alpha's Alpha consumes less than Beta today, but it will grow faster than Beta

Explanation / Answer

Q1. When 2,000 bicycles are produced each month, marginal benefit is 4 bottles of soda per bicycle while marginal cost is 2 bottles of soda per bicycle.

Marginal benefit is equal to marginal cost when 3,000 bicycles are produced. So, if current proudction is 2,000 bicycles and one more bicycle is produced then marginal benefit of that bicycle is, indeed, greater than marginal cost of that bicycle.

As marginal benefit is greater than marginal cost when 2,000 bicycles are produced, production of bicycles should be increased as increase in production will decrease the marginal benefit and increase the marginal cost. This increase in production should remain continue until two become equal because leve of output corresponding to equality of marginal benefit and marginal cost is the efficient level of output.

Thus, when 2,000 bicycles are produced then in that case more bicycles should be produced as it will make marginal benefit equal to marginal cost thereby resulting in attainment of efficient level of output.

Hence, the correct answer is option (4).

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