What Must Be True for Allocative Efficiency to Hold

question 99

Multiple Choice

What must be true for allocative efficiency to hold?

• A)Price must equal marginal revenue of the last unit sold.
• B)Price must equal the marginal cost of the last unit produced.
• C)Average variable cost is minimised in production.
• D)Average total cost is minimised in production.

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Definitions:

Product Differentiation

Strategies employed by businesses to make their products appear distinct from those of competitors in aspects like quality, design, or other features.

Physical Differences

Refers to the variations in the physical attributes of individuals or objects, including size, shape, and other measurable characteristics.

Monopolistic Competitor

A firm within a competitive market that has the power to influence prices through product differentiation, sitting between perfect competition and monopoly on the spectrum of market structures.

Average Total Cost Curve

A graphical representation showing the average cost of production per unit at different levels of output, combining both fixed and variable costs.