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Will a perfectly competitive market display allocative efficiency? Why or why not?
Allocative efficiency happens when the resources used in production are allocated optimally asper society. The price here denotes the willingness to pay by the consumers as well now if priceis above or below the market price which is not equal to marginal cost then either or buyersare at loss which disturbs the allocative efficiency. In perfectly competitive industry, firms are producing at a price where profit is zero and they will do their best to utilize maximum to lowerthe cost but they are not able to do so because they are in allocative efficiency in long-run.
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Chapter 8
Perfect Competition
How Markets Work
Firm Behavior and the Organization of Industry
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that's stuck about whether a perfectly competitive firm shows I lock it if efficiency. The short answer is that yes, it does. I located VE. Efficiency is a situation when the resource is used in production, her allocated optimally as per society. Now, how do we measure that? We want to make sure that the people who value the good the most are paying are getting the good, Um, and that firms are doing this lowest or yeah, at the lowest production cost possible. Well, a perfectly competitive market gusta again because firms are priced takers. They cannot charge higher then or their first and how low can prices go? Well, they're gonna go a slow as their production costs allow them to go. Because if they go beyond that, then they're going to start making losses, and they shouldn't do that. So being a price taker gives us that firms are supplying it at the lowest possible production costs and the equilibrium price is gonna tell us that those people who can afford the goodwill by the good right and those who don't value it that much how are now willing to pay the high price for the good are just not gonna buy it. So overall, in the long run, we have done perfectly competitive firms. Do you have this A locket? Inefficiency in the Martin.
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