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. FIGURE 12- 1
-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) Yes, because output is equated for all firms.
D) No, because the marginal cost curve for each firm has a different slope.
E) No, because each firm could easily produce more than 500 kilos.

Question

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.  FIGURE 12- 1
-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) Yes, because output is equated for all firms. 
D) No, because the marginal cost curve for each firm has a different slope. 
E) No, because each firm could easily produce more than 500 kilos.

Quizplus · Accepted Answer

Productive efficiency occurs when firms produce at the lowest possible cost, which requires equating marginal costs across all firms. If marginal costs are not equal, resources are not being used in the most efficient way.

Consider Three Firms, A, B and C, All Producing Kilos