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Wize University Microeconomics Textbook > Efficiency

Marginal Benefit and Marginal Cost

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Marginal Benefit and Marginal Cost

  • Marginal Benefit is the additional benefit consumers get from consuming one extra unit of a product. It is represented by the demand curve.
  • Marginal Cost is the additional cost of producing one more unit for the seller. It is represented by the supply curve.


  • Allocative (Pareto) Efficiency - when no one can be made better off without making someone else worse off. Allocative efficiency is achieved when we are at equilibrium (marginal cost = marginal benefit). Anything past that quantity is inefficient.
  • In the diagram above, for any output less than 15 the marginal benefit is
    greater
    than the marginal cost and there should be
    more
    units produced to reach allocative efficiency
  • In the diagram above, for any output greater than 15 that marginal benefit is
    less
    than the marginal cost and there should be
    less
    units produced to reach allocative efficiency






Practice: Marginal Benefit and Cost

Production beyond equilibrium is not efficient because the marginal buyer's willingness to pay is:
Extra Practice
You are willing to pay $600 for a smartphone and it will cost $400 to produce it, this means ideally for society:
At equilibrium, the producers are those with the ______ costs and the consumers are the ones with the ________ willingness to pay.
Your employer has asked you to start working overtime and has offered to pay $18 per hour for every hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to be the usual $15 per hour. In terms of dollars, what is the marginal benefit of working each hour of overtime?
You are willing to pay $600 for a smartphone and it will cost $400
Practice: Equilibrium
Production beyond equilibrium is not efficient because the marginal buyer's willingness to pay is:
You are willing to pay $600 for a smartphone and it will cost $400
Suppliers will be willing to supply a product only if
Consumers are willing to purchase a product or service when
Practice Question: Margin Analysis
Karen had an exam score of 50 percentage points. There is an extra credit assignment that Karen can complete that will raise her exam score by 20 percentage points. Karen has determined that the extra credit assignment will take 10 hours of her time. Karen will complete the assignment if she values the
Practice: Marginal Benefit
Your employer has asked you to start working overtime and has offered to pay $18 per hour for every hour you work beyond forty hours a week. The wage rate for each of the first forty hours will continue to be the usual $15 per hour. In terms of dollars, what is the marginal benefit of working each hour of overtime?
Rent Ceiling
An effective rent ceiling creates an inefficient outcome because at the rent ceiling​ ______.