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What is the main reason why perfect competition leads to allocative efficiency?

A. Perfectly competitive markets do not have any externalities.
B. Perfectly competitive firms always produce at maximum output.
C. Perfectly competitive firms produce at the lowest average total cost.
D. Perfectly competitive firms operate with zero economic profit.



Answer :

GinnyAnswer

Final answer:

Perfect competition leads to allocative efficiency because firms produce where Price = Marginal Cost, ensuring benefits to consumers match costs to society.


Explanation:

Perfect competition leads to allocative efficiency because in perfectly competitive markets, firms produce where Price (P) = Marginal Cost (MC). This ensures that the benefits to consumers match the costs to society, resulting in resources being efficiently allocated to their best alternative use, providing maximum satisfaction to society.


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