Question 1

Allocative efficiency is achieved in an industry when firms supply those goods and services that provide consumers with a marginal benefit equal to the marginal cost of producing those goods and services.

Accepted Answer

This statement is true. Allocative efficiency occurs when resources are allocated in a way that maximizes consumer satisfaction and minimizes waste within an industry. This is achieved when the marginal benefit and marginal cost of production are equal, as this indicates that the production of additional units of a good or service will provide as much value to society as it costs to produce them.

Question 2

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Accepted Answer

The answer of Which of the following describes a difference...

Question 3

When plasma television sets were first introduced prices were high and few firms were in the market.Later,economic profits attracted new firms and the price of plasma televisions fell.This example illustrates

Accepted Answer

The answer of When plasma television sets were first introduced...

Question 4

Using two graphs,illustrate how a positive technological change in the market for notebook computers could eliminate short-run economic profit for a firm in that market.On the first graph,use a supply and demand graph to illustrate the positive technological change.On the second graph,use demand,ATC,MC,and MR curves to illustrate the elimination of economic profit resulting from the positive technological change.Explain what is taking place in each graph.

Accepted Answer

The answer of Using two graphs,illustrate how a positive technological...

Question 5

If a firm in a perfectly competitive industry introduces a lower-cost way of producing an existing product,the firm will be able to earn economic profits in the long run.

Accepted Answer

The answer of If a firm in a perfectly competitive...

Question 6

Perfectly competitive firms produce up to the point where the price of the good equals the marginal cost of producing the last unit.This condition is referred to as

Accepted Answer

Allocative efficiency is achieved when the price of a good or service is equal to the marginal cost of producing it. This means that resources are being allocated in the most efficient way possible, and there is no opportunity to increase overall societal welfare by producing more of one good and less of another. Productive efficiency, on the other hand, refers to producing output at the lowest possible cost, whereas constant returns to scale refers to the phenomenon where increasing all inputs proportionately leads to an equal increase in output. "Perfectly competitive efficiency" is not a commonly used term in economics.

Question 7

In long-run competitive equilibrium,the perfectly competitive firm produces where price equals minimum average total cost.
a.What is this efficiency criterion called?
b.How does it benefit consumers?

Accepted Answer

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Question 8

What is meant by productive efficiency? How does a perfectly competitive firm achieve productive efficiency?

Accepted Answer

The answer of What is meant by productive efficiency? How...

Question 9

Firms in perfect competition produce the allocatively efficient output in the short run and in the long run.

Accepted Answer

In perfect competition, firms produce at the output level where marginal cost equals price, which is also the socially optimal level of output. Therefore, in both the short run and the long run, firms in perfect competition produce the allocatively efficient output.

Question 10

If productive efficiency characterizes a market

Accepted Answer

Productive efficiency means that output is being produced at the lowest possible cost, which means the marginal cost of production is minimized and firms are using the best technology available. However, it does not necessarily mean firms are producing the goods that consumers desire most, as this is determined by consumer demand and not necessarily efficiency.

Question 11

What is meant by allocative efficiency? How does a perfectly competitive firm achieve allocative efficiency?

Accepted Answer

The answer of What is meant by allocative efficiency? How...

Question 12

A teenaged babysitter is similar to a firm in a perfectly competitive industry in that,for both

Accepted Answer

Just like a firm in a perfectly competitive industry, a teenaged babysitter faces competition from many other suppliers of similar services. This competition limits their ability to set higher prices and creates a situation where they must provide their services at market equilibrium prices.

Question 13

Firms in perfect competition produce the productively efficient output level in the short run and in the long run.

Accepted Answer

The answer of Firms in perfect competition produce the productively...

Question 14

A perfectly competitive firm in long-run equilibrium produces output at the lowest possible average total cost.

Accepted Answer

In the long-run, a perfectly competitive firm adjusts its inputs to produce output at the lowest possible average total cost, also known as the efficient scale of production. This is because in a perfectly competitive market, there are many firms producing identical products, and consumers have perfect information about prices and quality. As a result, firms must compete on price, and any firm that charges more than the prevailing market price will lose customers. Therefore, firms have little pricing power and must produce at the lowest cost possible to stay in business.

Question 15

In the long run,the entry of new firms in an industry

Accepted Answer

When new firms enter an industry, there is increased competition which leads to companies lowering their prices to remain competitive. This will ultimately lead to prices being pushed down to the level of average cost, benefitting consumers. Therefore, option D is the correct answer.

Question 16

A perfectly competitive industry achieves allocative efficiency in the long run.What does allocative efficiency mean?

Accepted Answer

Allocative efficiency means that resources are allocated in a way that maximizes social welfare. In a perfectly competitive industry, each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. This ensures that resources are allocated efficiently, as any additional production would cost more than the revenue it generates. Therefore, choice (A) accurately describes allocative efficiency in a perfectly competitive industry.

Question 17

If a perfectly competitive firm achieves productive efficiency then

Accepted Answer

When a perfectly competitive firm achieves productive efficiency, it means that it is producing the good it sells at the lowest possible cost. This is because the firm has minimized its average total cost by using the optimal combination of inputs to produce a given level of output. Therefore, choice D is the correct answer. Choice A is incorrect because a perfectly competitive firm will not raise its price in order to earn an economic profit as it is unable to do so due to the presence of many other firms in the market. Choice B is incorrect as it defines allocative efficiency, which is not related to productive efficiency. Choice C is incorrect because minimum efficient scale refers to the lowest level of output at which a firm can achieve efficient production in the long run, which is not the same as productive efficiency.

Quiz 9: Firms in Perfectly Competitive Markets