Question

Are perfectly competitive markets allocatively efficient in the long​ run? A. Yes comma because firms produce at the lowest average cost possible. B. Yes comma because firms produce where the marginal benefit to consumers equals the marginal cost of production. C. ​No, because firms earn zero economic profits. D. ​No, because firms will not shut down unless price is less than the average variable cost of production. E. Both a and b.

Answer 1

Answer:

Correct option is A

Explanation:

Yes, because firms produce at the lowest average cost possible.

A perfectly competitive firm produces at MC=P=ATC in the long run, and productive efficiency is at a minimum of average total cost. An average total cost is a minimum where MC=P so the perfectly competitive markets are productively efficient in the long run.