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 allocatively efficient?

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 allocatively efficient?

Quizplus · Accepted Answer

Allocative efficiency requires both productive efficiency (where firms produce at minimum average cost) and output is where marginal cost equals marginal revenue. In this case, because the marginal costs are not equated for all firms, the industry cannot be productively efficient, and thus cannot be allocatively efficient.

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