Consider the efficiency of various market structures.In the absence of other market failures,allocative efficiency is achieved only under perfect competition because only this market structure results in
A)zero long-run profits.
B)P = MC.
C)complete freedom of entry and exit.
D)maximization of profits through competition.
E)productive efficiency.

Question

Quizplus · Accepted Answer

Perfect competition is the only market structure in which the price is equal to marginal cost (P = MC), which represents allocative efficiency. All other market structures have some degree of market power, leading to a divergence between the price and marginal cost, and hence, inefficiencies. While freedom of entry and exit is also essential for perfect competition, it alone does not guarantee allocative efficiency, as it is possible for firms to collude and manipulate prices. Productive efficiency and profit maximization are not unique characteristics of perfect competition but can be achieved in other market structures too. Long-run profits can also be present in some other market structures, such as monopolistic competition, where firms differentiate their products and can earn profits in the long run.

Consider the Efficiency of Various Market Structures