Consider Three Firms, A, B and C, All Producing Kilos

question 74

Multiple Choice

Consider three firms, A, B and C, all producing kilos of potatoes (per year) in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms. FIGURE 12- 1
-Refer to Figure 12- 1. Suppose each of Firms A, B, and C are producing 500 kilos of potatoes. Is this industry allocatively efficient?

• A) It is not possible to say whether this industry is allocatively efficient because we do not know the market price for kilos of potatoes.
• B) Yes, because output is equated for all firms.
• C) It is not possible to say whether this industry is allocatively efficient because we do not know the average costs for each firm.
• D) No, since marginal costs are not equated for all firms, the industry is not productively efficient, and thus cannot be allocatively efficient.
• E) No, because the marginal cost curve for each firm has a different slope.

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