Chapter 60, Problem 2MCQ

To determine

Attainment of productive efficiency with perfect competition.

Answer to Problem 2MCQ

(b) The long run but not in the short run.

Explanation of Solution

With perfect competition, productive efficiency is generally attained in the long run because, in long run, market equilibrium is at a minimum of the average total cost that is cost is minimized and no resources are wasted, and goods are distributed to those consumers who are willing to pay the most for them. Hence, option (b) is correct.

In the short run, the perfectly competitive firm does not occur at the minimum average total cost and the firm might earn supernormal profit at the expense of wasting resources thus options (a), (c) and (d) are incorrect.

In perfect competition, there is a large number of firm so a single firm can not affect the market behavior, and the outcome will be determined by the industry uniform for all the firms, hence option (e) is incorrect.

Economics Concept Introduction

Introduction:

Productive efficiency is characterized by

1. P = MC
2. Minimized cost
3. There is no wastage of resources.