Explain the shapes of the marginal-benefit and marginal-cost

Question

Specify and explain the shapes of the marginal-benefit and marginal-cost curves and use these curves to determine the optimal allocation of resources to a particular product.  If current output is such that marginal cost exceeds marginal benefit, should more or less resources be allocated to this product?  Explain.

Answer 1

The marginal benefit curve is downward sloping, MB falls as more of a product is consumed because additional units of a good yield less satisfaction than previous units.  The marginal cost curve is upward sloping, MC increases as more of a product is produced since additional units require the use of increasingly unsuitable resource.  The optimal amount of a particular product occurs where MB equals MC.  If MC exceeds MB, fewer resources should be allocated to this use.  The resources are more valuable in some alternative use (as reflected in the higher MC) than in this use (as reflected in the lower MB).