The allocatively efficient level of output is produced in any market structure when

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BlackTom AI · Accepted Answer

Here’s a step-by-step look at each option in the question about allocative efficiency.
Option 1: 'marginal revenue is equal to zero.' This is not the condition for allocative efficiency. A zero marginal revenue occurs in certain monopoly or revenue-maximizing scenarios, not at the allocatively efficient output level. Allocative efficiency concerns the price society pays for a good relative to the marginal cost of producing it, not the revenue-maximizing quantity for a firm.
Option 2: 'average variable cost is at a minimum.' This describes productive efficiency, specifically the point where a firm minimizes average variable costs (or average total costs in some contexts). While productive efficiency matters for cost reasons, allocative efficiency is about the allocation of resources relative to consumer preferences, not about costs per unit at the minimum AVC point.
Option 3: 'long-run economic profit is equal to zero.' This signals normal profit and is a marker of long-run equilibrium in perfectly competitive markets, but it tells us about profitability rather than the allocation of resources to meet consumer wants. Allocative efficiency is about price signaling, not whether firms are earning zero economic profit.
Option 4: 'firms are experiencing economies of scale.' Economies of scale relate to decreasing average costs as output grows, which affects productive efficiency and potential market structure, but it does not define allocative efficiency. Allocative efficiency focuses on the alignment of price with marginal cost, not the presence of scale economies.
Option 5: 'price is equal to marginal cost.' This directly ties to the standard criterion for allocative efficiency: the value that consumers place on the last unit produced (price, reflecting marginal benefit) equals the cost to society of producing that unit (marginal cost). When P = MC, resources are allocated so that the additional benefit to buyers from one more unit equals the additional cost of producing it, which is the essence of allocative efficiency.
In summary, options 1, 2, 3, and 4 describe other efficiency or market concepts (marginal revenue behavior, productive efficiency, zero economic profit, economies of scale) that do not capture the allocative efficiency condition. Option 5 correctly identifies the P = MC criterion that defines allocative efficiency in market output.

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AP Economics-Hillebrand Unit 3 Exam (2025) v1- Requires Respondus LockDown Browser

The allocatively efficient level of output is produced in any market structure when

View Explanation

Log in for full answers

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