Question:
When a firm is producing the allocative efficient level of output,
(1) total revenue is equal to total cost.
(2) marginal revenue is equal to marginal cost.
(3) marginal revenue is greater than marginal cost.
(4) price is equal to average total cost.
(5) price is equal to marginal cost.
Correct Answer:
(5)
Answer Explanation:
Allocative efficiency occurs when resources are distributed in a way that maximizes consumer satisfaction. This is achieved at the output level where the price consumers are willing to pay (Marginal Benefit) exactly equals the Marginal Cost (MC) of producing the last unit. Therefore, P = MC.
Topic: Economic Efficiency Year: 2018
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