A perfectly competitive industry achieves allocative efficiency in the long run. What does allocative efficiency mean?
A) Each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit.
B) Each firm produces up to the point where all scale economies are exhausted.
C) Production occurs at the lowest average total cost.
D) Firms use an input combination that minimises cost and maximises output.

Question

Quizplus · Accepted Answer

Allocative efficiency occurs when resources are allocated in a manner that maximizes total welfare within an economy. In a perfectly competitive market, allocative efficiency is achieved when each firm produces up to the point where the price of the good equals the marginal cost of producing the last unit. This ensures that there are no resources wasted in producing goods that consumers do not value at the given market price.

A Perfectly Competitive Industry Achieves Allocative Efficiency in the Long