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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.

Short description: Three graphs labelled firm A, firm B, and firm C. Long description: The first graph represents firm A. The horizontal axis representing the quantity of potatoes ranges from 200 to 700. The vertical axis representing cost in dollars ranges from 0 to 8, in increments of 2. MC subscript A passes through the following points: (200, 2), (500, 4), and (700, 6). The second graph represents firm B. The horizontal axis representing the quantity of potatoes ranges from 500 to 900. The vertical axis representing cost in dollars ranges from 0 to 8, in increments of 2. MC subscript B passes through the following points: (500, 2), (800, 4), and (900, 6). The third graph represents firm C. The horizontal axis representing the quantity of potatoes ranges from 200 to 800. The vertical axis representing cost in dollars ranges from 0 to 8, in increments of 2. The MC subscript C passes through the following points: (200, 4), (500, 6), and (800, 8).

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?



▸ It is not possible to say whether this industry is allocatively efficient because we do not know the average costs for each firm.

▸ No, since marginal costs are not equated for all firms, the industry is not productively efficient, and thus cannot be allocatively efficient.

▸ No, because the marginal cost curve for each firm has a different slope.

▸ It is not possible to say whether this industry is allocatively efficient because we do not know the market price for kilos of potatoes.

▸ Yes, because output is equated for all firms.
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Microeconomics

Microeconomics


Edition: 17th
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kady Author
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Brilliant ツ
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