An efficient allocation of resources requires that a product's price equals its average cost.

Question

Quizplus · Accepted Answer

An efficient allocation of resources requires that a product's price equals its marginal cost, not its average cost. This is because the marginal cost represents the cost of producing one additional unit of the product, which is the cost that should be compared to the revenue received from selling that unit. If price is set equal to average cost, the firm may not be covering all of its costs and may not be able to continue producing the product in the long run.

An Efficient Allocation of Resources Requires That a Product's Price