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 allocatively efficient?
A)It is not possible to say whether this industry is allocatively efficient because we do not know the market price for kilos of potatoes.
B)It is not possible to say whether this industry is allocatively efficient because we do not know the average costs for each firm.
C)Yes,because output is equated for all firms.
D)No,since marginal costs are not equated for all firms,the industry is not productively efficient,and thus cannot be allocatively efficient.
E)No,because the marginal cost curve for each firm has a different slope.

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 allocatively efficient?
A)It is not possible to say whether this industry is allocatively efficient because we do not know the market price for kilos of potatoes. 
B)It is not possible to say whether this industry is allocatively efficient because we do not know the average costs for each firm. 
C)Yes,because output is equated for all firms. 
D)No,since marginal costs are not equated for all firms,the industry is not productively efficient,and thus cannot be allocatively efficient. 
E)No,because the marginal cost curve for each firm has a different slope.

Quizplus · Accepted Answer

Allocative efficiency occurs when the marginal cost of production equals the market price of the good. However, since we do not know the market price for kilos of potatoes, we cannot determine if the industry is allocatively efficient or not. The fact that the marginal cost curves for the three firms have different slopes implies that they have different levels of efficiency in production, which could lead to an inefficient allocation of resources in the industry. Therefore, the industry is not productively efficient and cannot be allocatively efficient.

Consider Three Firms,A,B and C,all Producing Kilos of Potatoes (Per