Question

In the long run:

	firms in both monopolistic competition and competition achieve allocative efficiency but not productive efficiency.
	only firms in a competitive market achieve both allocative and productive efficiency.
	only firms in monopolistic competition achieve both allocative and productive efficiency.
	neither competition nor monopolistic competition achieves allocative efficiency.

Answer 1

The long-run firm position under perfect competition is said to be efficient because the ATC is minimised and price is equal to Minimum of ATC.

Since in the long-run, the long-run equilibrium will occurs at a point where

MR=MC=LATC=SRATC

IN the perfect competition when the industry is in the long-run equilibrium then P=MC and this represents allocative efficiency.

When P=MC and here AC is minimum and it means this is productive efficiency.

Since in the long-run the monopolistcally competitive firm profit-maximizing condition are;

P=AC

Since at this condition AC is not minimum, so there will be no productive efficiency.

Hence it can be said that in the long-run only firms in a competitive market achieve both allocative and productive efficiency.

Hence option second is the correct answer.