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In my economics class, we're learning about the production possibilities frontier, marginal benefits, and marginal costs. The book uses the example of a company that can choose between producing colas, pizzas, or some combination of both:

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The book then goes on to note that while marginal cost can be directly derived from this graph in terms of the slope (which makes sense), the marginal benefit is separate data that depends on preference. Here is the data they present for the marginal benefit of producing one more unit of pizza:

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Question: I would greatly appreciate if someone could please clarify why the marginal benefit of producing one more unit of pizza is measured as "Willingness to pay cans of soda per pizza).

To clarify: I understand why marginal cost would be measured in terms of cans of cola. This is because producing one more unit of pizza incurs a loss (cost) of a certain number of cans of cola that we could have otherwise produced.

But for marginal benefit, it's unclear how we're measuring the "benefit" we derive in terms of... cans of cola. That makes no sense.

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  • $\begingroup$ Is it a measure of how many cans of cola we as the company are willing to give up in order to produce one more unit of pizza? $\endgroup$ – AleksandrH Aug 29 '18 at 13:36
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The reason why marginal benefit is measured in cans of soda is that this economy only has two goods: pizza and soda. So instead of using money we may as well use soda. Alternatively, in the absence of money this economy is an exchange economy, and the only way to pay for pizza in that case is with soda.

When you move beyond two goods willingness to pay is often measured in money value. However, measuring willingness to pay in money value is just a convenient way of saying: a bundle of "everything else that is available".

In a two good economy,given the current amount of pizza that you have, an additional slice of pizza may thus be worth 5 cans of soda to you. In a multiple good economy it may be say 5\$ where the 5\$ stands for "all the other (combinations of) goods you could get for 5\$.

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