Which of following best describes a perfectly competitive firm in the short run and the long run?

Choose 1 answer:
(A) Short run: neither allocatively efficient nor productively efficient; long run: allocatively efficient and productively efficient
(B) Short run: allocatively efficient and productively efficient; long run: neither allocatively efficient nor productively efficient
(c) Short run: allocatively efficient; long run: allocatively efficient and productively efficient
(D) Short run: productively efficient only; long run: allocatively efficient only
(E) Short run: neither allocatively efficient nor productively efficient; long run: neither allocatively efficient nor productively efficient

Question

Which of following best describes a perfectly competitive firm in the short run and the long run?

Choose 1 answer:
(A) Short run: neither allocatively efficient nor productively efficient; long run: allocatively efficient and productively efficient
(B) Short run: allocatively efficient and productively efficient; long run: neither allocatively efficient nor productively efficient
(c) Short run: allocatively efficient; long run: allocatively efficient and productively efficient
(D) Short run: productively efficient only; long run: allocatively efficient only
(E) Short run: neither allocatively efficient nor productively efficient; long run: neither allocatively efficient nor productively efficient

Accepted Answer

∻Solution∻ ‖ a ⋮ Short Run Efficiency: In the short run, a perfectly competitive firm may not be allocatively efficient or productively efficient. Allocative efficiency occurs when $P = MC$, and productive efficiency occurs when the firm produces at the lowest point on its average total cost (ATC) curve. In the short run, firms may not achieve these efficiencies due to fixed factors of production and other constraints. ‖ ‖ b ⋮ Long Run Efficiency: In the long run, a perfectly competitive firm is both allocatively efficient and productively efficient. Allocative efficiency is achieved because firms produce where $P = MC$, and productive efficiency is achieved because firms produce at the lowest point on their ATC curve. In the long run, firms can adjust all inputs and enter or exit the market, leading to zero economic profit and optimal efficiency. ‖ ∻Answer∻ ⚹ (A) Short run: neither allocatively efficient nor productively efficient; long run: allocatively efficient and productively efficient ⚹ ∻Key Concept∻ ⚹ Efficiency in Perfect Competition ⚹ ∻Explanation∻ ⚹ In the short run, firms face constraints that prevent them from being allocatively or productively efficient. However, in the long run, the ability to adjust all inputs and the entry and exit of firms lead to both allocative and productive efficiency. ⚹◊What is the relationship between short run and long run efficiency levels for a perfectly competitive firm in terms of allocative and productive efficiency?⍭ Generate me a similar question◊

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