Are perfectly competitive markets allocatively efficient in the long run? A. Yes comma because firms produce at the lowest average cost possible. B. Yes comma because firms produce where the marginal benefit to consumers equals the marginal cost of production. C. No, because firms earn zero economic profits. D. No, because firms will not shut down unless price is less than the average variable cost of production. E. Both a and b.

Question

Ayden Landry

Business

22 October, 00:11

Are perfectly competitive markets allocatively efficient in the long run? A. Yes comma because firms produce at the lowest average cost possible. B. Yes comma because firms produce where the marginal benefit to consumers equals the marginal cost of production. C. No, because firms earn zero economic profits. D. No, because firms will not shut down unless price is less than the average variable cost of production. E. Both a and b.

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Answers (1)

Know the Answer?

Mary Fischer · Answer 1

Correct option is A

Explanation:

Yes, because firms produce at the lowest average cost possible.

A perfectly competitive firm produces at MC=P=ATC in the long run, and productive efficiency is at a minimum of average total cost. An average total cost is a minimum where MC=P so the perfectly competitive markets are productively efficient in the long run.