If every firm knows its marginal cost but a central planner cannot know every firm's marginal cost, then:
A) central planners will outperform competitive markets.
B) competitive markets will outperform central planners.
C) central planners and competitive markets will perform equally well.
D) it is impossible to say whether central planners or competitive markets will perform better.

Question

Quizplus · Accepted Answer

Competitive markets will outperform central planners because firms will produce where their marginal cost equals the market price, which equates to the socially efficient level of production. However, central planners cannot know each individual firm's marginal cost and thus may not allocate resources efficiently. This leads to potential inefficiencies in production and allocative inefficiencies.

If Every Firm Knows Its Marginal Cost but a Central