Using the concepts of Marginal Cost (MC) and Marginal Utility (MU), discuss the

Question

Using the concepts of Marginal Cost (MC) and Marginal Utility (MU), discuss the nature of the inefficiency in each of the following cases: a) an arrangement that offers relatively litle coffee and much tea to people who prefer coffee and does the reverse for tea lovers. b) an arrangement in which skilled mechanics are assigned to ditch digging and unskilled laborers to repairing cars c) an arrangement that produces a large quantity of trucks and few cars, assuming that both cost about the same amount to produce and to run but that most people in the community prefer cars to trucks

Explanation / Answer

a) here marginal cost will be more than marginal utility as coffee is prefered over tea/. for same cost utility is less b)here for same cost lesser work is done .. work is not alocated properly c)demand han ot been kept in mind while supplying hence more trucks are supplied where more cars are required

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