Question

Allocative efficiency occurs when goods and services are produced and sold to consumers not only at _____, but at minimum average total cost. Please choose the correct answer from the following choices.

a. short-run average variable cost
b. long-run average variable cost
c. variable cost
d. marginal cost

Answer 1

D

Step-by-step explanation:

Allocative efficiency occurs when industries in the long-run:

1. Sell at an equilibrium price that is equal to the marginal cost (P*=MC)

2. And simultaneously they minimize average total costs (the minimum point of the red curve ). This is what happens in the long-run in a perfect competitive market.