What conditions must be satisfied if resources are used ...

[jayhills49]

What conditions must be satisfied if resources are used efficiently?
 
  What will be an ideal response?

Question 2

Suppose an executive has a choice between two salary compensation packages. One guarantees him an income of 250,000 a year.
 
  The other would give allow him to earn an extra 50,000 a year if profits rise by 2 but receive a pay cut of 50,000 f they don't. Let's assume that there is a 50 chance that the profits could rise by 2 or more and a 50 chance that they won't. Explain why he might accept the 250,000 guaranteed salary. What would have to be true for him to accept the second salary compensation package?

[Smiles0805]

Answer to Question 1

Resources are used efficiently when more of one good or service cannot be produced without producing less of some of another good or service that is valued more highly. This is known as allocative efficiency and it occurs when: 1) production efficiency is achieved, and 2) the marginal benefit received from the last unit produced is equal to the marginal cost of producing the last unit.

Answer to Question 2

Workers, like consumers, make choices not to maximize income per se but to maximize their utility levels. If the law of diminishing marginal utility holds as economists expect then the extra-added utility that he would receive from the 50,000 increase in income might be less than the expected utility that he would enjoy if he lost the 50,000 . What would have to be true for him to accept the second salary compensation method is if the utility lost was less than the utility gained.