For allocative efficiency to hold,
A)price must equal marginal revenue of the last unit sold.
B)price must equal the marginal cost of the last unit produced.
C)the average variable cost must be minimized in production.
D)the average total cost must be minimized in production.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when price equals the marginal cost of production of the last unit produced. This is because at this point, the benefits (in terms of revenue generated) of producing the last unit are equal to the costs (in terms of marginal production costs) of producing it, indicating an efficient allocation of resources. Option A is incorrect because marginal revenue is not necessarily equal to marginal cost. Option C and D are incorrect because they refer to cost minimization rather than allocative efficiency.

For Allocative Efficiency to Hold