A free- market economy with perfect allocative efficiency does not exist in reality because
A) the assumption of profit- maximization is not a realistic assumption about the behaviour of firms.
B) firms in many industries have some degree of market power and face negatively sloped demand curves, and produce a level of output where P > MC.
C) the decentralization of economic power in a free- market economy does not allow for allocative efficiency.
D) the assumption of utility maximization is not a realistic assumption about the behaviour of consumers.
E) government intervention in the economy prevents the economic forces that would eventually bring the market to an allocatively efficient outcome.
Correct Answer:
Verified
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