An underallocation of resources is occurring in a purely competitive industry whenever the price of the product is greater than marginal cost.

Question

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In a purely competitive industry, the condition for allocative efficiency is that price equals marginal cost (P=MC). If the price is greater than the marginal cost (P>MC), it indicates that the value consumers place on the product is higher than the cost of producing an additional unit, suggesting that more resources should be allocated to the production of this good to achieve allocative efficiency. This scenario represents an underallocation of resources.

An Underallocation of Resources Is Occurring in a Purely Competitive