Why is the perfectly competitive firm the only one that achieves resource allocative efficiency?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

Firms in perfect competition achieve allocative efficiency because the goods that they sell are perfectly homogeneous.  There is nothing to differentiate them from one another and so there is no reason for a customer to prefer one over the other.  There is no other market structure in which this is...

Unlock
This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Start your 48-Hour Free Trial

Firms in perfect competition achieve allocative efficiency because the goods that they sell are perfectly homogeneous.  There is nothing to differentiate them from one another and so there is no reason for a customer to prefer one over the other.  There is no other market structure in which this is true.

Because of this, the demand for the goods these firms sell is perfectly elastic.  This makes it so that the price of the good will always equal the marginal cost of making it.  The customer is not paying anything more than it costs to make the product.  This is allocatively efficient.  

 

Approved by eNotes Editorial Team