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malhi101 malhi101
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5 months ago

The diagram below shows the market demand curve and the cost curves for a single firm.

Short description: A graph plots output against price. Long description: The horizontal axis representing output lists the following values from left to right: Q subscript 1 and Q subscript 2. The vertical axis representing dollars lists the following values from bottom to top: P subscript 1, P subscript 2, and P subscript 3. The graph plots three curves and five points. The points are as follows: a (Q subscript 1, P subscript 3), b (Q subscript 2, P subscript 2), c (Q subscript 2, P subscript 1), d (Q subscript 1, P subscript 2), and e (Q subscript 1, P subscript 1). The curve, LRAC passes through the following points: a and b. The curve, MC passes through the point, c. The curve, D passes through the following points: a and c. Curve, D intersects the curves, LRAC and MC at points, a and c.

FIGURE 12-7

Refer to Figure 12-7. Suppose this firm is being regulated using a policy of marginal-cost pricing. In this case,



▸ allocative efficiency is achieved because profits are maximized.

▸ the result is allocatively inefficient because the firm is suffering losses.

▸ the result is allocatively inefficient because the marginal cost curve lies below the ATC curve.

▸ the result is allocatively inefficient because the firm is earning profits.

▸ allocative efficiency is achieved because price equals marginal cost.
Textbook 

Microeconomics


Edition: 17th
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cblack14cblack14
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More solutions for this book are available here
allocative efficiency is achieved because price equals marginal cost.

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malhi101 Author
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5 months ago
Thanks
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Thanks for your help!!
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