Allocative efficiency is achieved when the production of a good occurs where A) P = minimum ATC. B) ^P⁼^MC. C) P = minimum AVC. D) total revenue is equal to TFC.

Question

Quizplus · Accepted Answer

Allocative efficiency is achieved when the production of a good occurs where marginal cost (MC) equals marginal benefit (MB), or where the supply curve (S) intersects the demand curve (D) at the equilibrium point (E). In the given diagram, the equilibrium point is at ^{and this is where allocative efficiency is achieved. At this point, the market price (P) equals the minimum ATC, minimum AVC, and MC. Thus, choice A and choice C are incorrect. Choice D about total revenue being equal to TFC is not relevant to allocative efficiency.}

Allocative Efficiency Is Achieved When the Production of a Good