In the absence of other market failures,allocative efficiency is achieved in a perfectly competitive industry because
A)firms do not need to maximize profits.
B)the industry produces a level of output such that the marginal cost of production is minimized.
C)the industry produces a level of output such that there are increasing returns to scale.
D)there are barriers to entry.
E)the industry produces a level of output such that the marginal cost to producers equals the marginal benefit to consumers.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, the interaction of buyers and sellers determines the market price. The marginal cost to producers will be equal to the marginal benefit to consumers at the equilibrium point. Therefore, producing at this equilibrium point ensures that resources are allocated efficiently, and allocative efficiency is achieved.

In the Absence of Other Market Failures,allocative Efficiency Is Achieved