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How does the source define allocative efficiency in a perfectly competitive market?
AEvery firm charges a different price
BPrice equals marginal cost of production
CPrice equals average fixed cost of production
DTotal revenue equals total cost for every firm
Answer & Solution
Correct answer: B. Price equals marginal cost of production
1. Allocative efficiency concerns whether the quantity produced matches what is socially preferred.
2. The source ties this to price equaling marginal cost, since price reflects the social benefit of a good and marginal cost reflects its social cost.
3. Average fixed cost is not the comparison the source uses for allocative efficiency.
4. In a perfectly competitive market all firms are price takers charging the same market price, not different prices.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.4 | Efficiency in Perfectly Competitive Markets_
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