Question

A perfectly competitive industry achieves allocative efficiency in the long run. What does allocative efficiency​ mean? A. Each firm produces up to the point where all scale economies are exhausted. B. Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. C. Firms use an input combination that minimizes cost and maximizes output. D. Production occurs at the lowest average total cost.

Answer 1

Answer: B. Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit.

Explanation:

Allocative efficiency means that the point chosen on the production possibility frontier is socially preferred.

In a perfectly competitive market, allocative efficency is achieved at the point where price equals the marginal cost of production. At this price producer and consumer surplus is maximised.