The diagram below shows the market demand curve and the cost curves for a single firm. FIGURE 12-6
-Refer to Figure 12-6.Suppose this firm is being regulated using a policy of marginal-cost pricing.In this case,
A)allocative efficiency is achieved because profits are maximized.
B)the result is allocatively inefficient because the firm is suffering losses.
C)the result is allocatively inefficient because the firm is earning profits.
D)the result is allocatively inefficient because the marginal cost curve lies below the ATC curve.
E)allocative efficiency is achieved because price equals marginal cost.

Question

The diagram below shows the market demand curve and the cost curves for a single firm.  FIGURE 12-6
-Refer to Figure 12-6.Suppose this firm is being regulated using a policy of marginal-cost pricing.In this case,
A)allocative efficiency is achieved because profits are maximized. 
B)the result is allocatively inefficient because the firm is suffering losses. 
C)the result is allocatively inefficient because the firm is earning profits. 
D)the result is allocatively inefficient because the marginal cost curve lies below the ATC curve. 
E)allocative efficiency is achieved because price equals marginal cost.

Quizplus · Accepted Answer

Marginal-cost pricing sets the price equal to the marginal cost, which is the efficient level of output. Therefore, allocative efficiency is achieved because price equals marginal cost.

The Diagram Below Shows the Market Demand Curve and the Cost