A perfectly competitive industry achieves allocative efficiency because
A)goods and services are produced at the lowest possible cost.
B)goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.
C)it produces where market price equals marginal production cost.
D)firms carry production surpluses.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry, goods and services are produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it. This is known as allocative efficiency, where resources are allocated in a way that maximizes social welfare. When marginal benefit equals marginal cost, the industry as a whole is producing the optimal level of output, and any deviation from that point would result in a loss of efficiency. Therefore, option B is the correct answer. Options A and D are incorrect because producing at the lowest possible cost or carrying production surpluses do not necessarily lead to allocative efficiency. Option C is partially correct, but it only describes the condition for perfect competition, not the achievement of allocative efficiency.

A Perfectly Competitive Industry Achieves Allocative Efficiency Because