Output efficiency occurs at the tangency between the consumers’ indifference curves and the production possibilities frontier, where the marginal rate of substitution MRS equals the marginal rate of transformation MRT. Point M shows a possible output combination of pancakes and cereal. Because it lies on the intersection of the PPF and the indifference curve U_M—and not at the tangency—M is an inefficient output combination. N, which is located at the tangency between the PPF and U_N where MRS = MRT = 1.25, is an efficient output allocation.