When does allocative efficiency occur?
A)When the price of the product is equal to its short-run average cost.
B)When the price of the product is equal to its long-run average cost.
C)When the price of the product is equal to its marginal cost.
D)When the price of the product is below its marginal cost.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when the price of a product is equal to its marginal cost, which means that the resources are being allocated efficiently and the market is producing the optimal amount of the given product. Choices A and B are related to the concept of productive efficiency, which occurs when the price of the product is equal to its short-run or long-run average cost respectively. Choice D is not a valid option since it would result in losses for the producers, thus not being sustainable in the long run.

When Does Allocative Efficiency Occur