14.18
Achieving output efficiency requires that the MRS equals the MRT.
Consider two goods: oranges and apples.
In this scenario, consumers are willing to give up one and a half oranges to obtain one more unit of apple. As a result, MRS is 1.5.
However, producers only need to give up one orange to produce one additional apple, meaning the MRT is one.
This mismatch between MRS and MRT indicates that the economy is not operating at output efficiency.
To resolve this imbalance, production must shift from oranges to apples until MRT equals MRS. For example, equilibrium is achieved when both converge at 1.25.
On a PPF, this efficient outcome is depicted where the slope of the PPF equals the slope of the indifference curve. When MRS is 1.5 and MRT is one, the indifference curve initially intersects the PPF but does not tangentially touch it.
By reallocating resources, the economy reaches a point where MRS and MRT both equal 1.25, making the indifference curve tangent to the PPF and achieving output efficiency.
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