Question

If all firms are profit maximizers, then the following is assured:_____.

a) allocative and productive efficiency.
b) that the economy is operating inside the production possibilities boundary.
c) allocative efficiency.
d) each firm is productively efficient.
e) that firms attain the lowest possible average costs.

Answer 1

In a perfectly competitive market, if all firms are profit maximizers, they ensure both allocative and productive efficiency, where goods are produced at the lowest average cost and resources are optimally allocated.

Step-by-step explanation:

If all firms are profit maximizers, then the following is assured: allocative and productive efficiency. This outcome is typical in a perfectly competitive market, where firms and consumers interact in such a way that they achieve productive efficiency, meaning firms produce goods without waste and at the lowest possible average cost. Furthermore, they achieve allocative efficiency, which ensures that the resources are allocated in the most efficient way among all possible and represents a point on the production possibility frontier where the price equals marginal cost.