If a market is allocatively efficient, what must be true?
Choose 1 answer:
(A) Marginal revenue equals marginal cost.
(B) Price is greater than the average total cost of the last item produced.
(C) Total revenue is less than the total cost
(D) The price of a good equals the marginal cost of the last item produced.
(E) Price equals the minimum average total cost.

Question

Accepted Answer

∻Solution∻ ‖ a ⋮ Allocative Efficiency: Allocative efficiency occurs when the price of the good equals the marginal cost (MC) of production. This condition ensures that the resources are allocated in the most efficient manner, producing the quantity of goods that consumers value the most. ‖ ‖ b ⋮ Answer Choices Analysis: The correct answer must reflect the condition where the price equals the marginal cost of the last unit produced. This is because, at this point, the value consumers place on the good (reflected by their willingness to pay the price) equals the cost to society of making one more unit of the good. ‖ ∻Answer∻ ⚹ (D) The price of a good equals the marginal cost of the last item produced. ⚹ ∻Key Concept∻ ⚹ Allocative Efficiency in a Market ⚹ ∻Explanation∻ ⚹ In an allocatively efficient market, the price of a good will be equal to the marginal cost of producing the last unit, ensuring that the value to consumers is in line with the cost to society. ⚹◊How does allocative efficiency impact the price and production decisions in a market?⍭ Generate me a similar question◊

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