FIGURE 12- 1 Consider three firms,A,B and C,all producing kilos of potatoes (per year)in a perfectly competitive market.The diagrams below show marginal cost curves for each of the three firms.

-Refer to Figure 12- 1.Suppose each of Firms A,B,and C are producing 500 kilos of potatoes.Is this industry productively efficient?
A)It is not possible to say whether this industry is productively efficient because we do not know the market price of the product.
B)No,because marginal costs are not equated for all firms.
C)No,because each firm could easily produce more than 500 kilos.
D)Yes,because output is equated for all firms.
E)No,because the marginal cost curve for each firm has a different slope.

Question

FIGURE 12- 1 Consider three firms,A,B and C,all producing kilos of potatoes (per year)in a perfectly competitive market.The diagrams below show marginal cost curves for each of the three firms.
 
-Refer to Figure 12- 1.Suppose each of Firms A,B,and C are producing 500 kilos of potatoes.Is this industry productively efficient?
A)It is not possible to say whether this industry is productively efficient because we do not know the market price of the product. 
B)No,because marginal costs are not equated for all firms. 
C)No,because each firm could easily produce more than 500 kilos. 
D)Yes,because output is equated for all firms. 
E)No,because the marginal cost curve for each firm has a different slope.

Quizplus · Accepted Answer

Productive efficiency requires that all firms produce at minimum average total cost (ATC) and at the same output level. In a perfectly competitive market, this occurs where marginal cost (MC) equals price (P), which is also equal to ATC. In the given scenario, we do not know the market price, but we see that the MC curves for Firms A, B, and C intersect at different points, meaning that they have different minimum points for ATC. Therefore, they are not producing at minimum ATC and are not productively efficient.

FIGURE 12- 1 Consider Three Firms,A,B and C,all Producing Kilos