What is implied if P = MC AC?
A)The market is achieving productive efficiency but is not achieving allocative efficiency.
B)The market is achieving allocative efficiency but is not achieving productive efficiency.
C)The market is achieving neither productive efficiency nor allocative efficiency.
D)The market is achieving both allocative efficiency and productive efficiency.

Question

What is implied if P = MC > AC?
A)The market is achieving productive efficiency but is not achieving allocative efficiency.
B)The market is achieving allocative efficiency but is not achieving productive efficiency.
C)The market is achieving neither productive efficiency nor allocative efficiency.
D)The market is achieving both allocative efficiency and productive efficiency.

Quizplus · Accepted Answer

Allocative efficiency is achieved when the price (P) equals marginal cost (MC), indicating that resources are allocated in a way that maximizes consumer and producer surplus. However, if average cost (AC) is lower than both P and MC, it implies that the firm could produce at a lower cost per unit, suggesting that productive efficiency, which occurs when goods are produced at the lowest possible cost, is not achieved.

What Is Implied If P = MC > AC