A perfectly competitive market results in efficiency because
A)Price is driven down to minimum ATC.
B)Price rises high enough to equal marginal cost.
C)Zero economic profit is achieved.
D)MC

Question

A perfectly competitive market results in efficiency because
A)Price is driven down to minimum ATC.
B)Price rises high enough to equal marginal cost.
C)Zero economic profit is achieved.
D)MC < P.

Quizplus · Accepted Answer

In a perfectly competitive market, price is driven down to minimum average total cost (ATC) due to the existence of numerous small firms. This results in allocative efficiency, where the optimal amount of output is produced at the lowest possible cost. Additionally, productive efficiency is achieved as firms produce output at minimum ATC. Therefore, A is the correct answer. B, C, and D are not sufficient explanations for efficiency in a perfectly competitive market.

A Perfectly Competitive Market Results in Efficiency Because