👉 Allocation pimples, also known as allocation defects, occur when the resources a firm allocates to different projects or activities are not efficiently distributed to maximize profit. This inefficiency arises when the marginal cost of producing an additional unit of a product exceeds its marginal revenue, leading to overproduction or underproduction. Alternatively, it can happen when there is a misallocation of resources due to external factors like market distortions, government policies, or internal managerial decisions that favor certain projects over others. In both cases, the firm fails to achieve the optimal level of production, resulting in reduced profitability.
