In the long run
A) firms in both monopolistic competition and perfect competition achieve allocative efficiency but not productive efficiency.
B) only firms in a perfect competition achieve both allocative and productive efficiencies.
C) only firms in monopolistic competition achieve both allocative and productive efficiencies.
D) neither firms in perfect competition nor monopolistic competition achieve allocative efficiency.

Question

Quizplus · Accepted Answer

In the long run, only firms in perfect competition achieve both allocative and productive efficiencies. This is because in perfect competition, firms produce at the point where price equals marginal cost (allocative efficiency) and operate at the minimum point of their average total cost curve (productive efficiency). Monopolistic competition, on the other hand, does not achieve productive efficiency due to excess capacity and does not achieve allocative efficiency because price does not equal marginal cost.

In the Long Run