Question

Which of the following conditions needs to occur for a market to achieve allocative efficiency?

The marginal cost of the last unit produced is greater than the marginal benefit of producing that unit.

The sum of producer and consumer surplus is maximized.

Producers' maximum willingness to equals consumers' minimum acceptable price for the last unit of output.

The total revenue received by producers equals the total cost of production.

Answer 1

The sum of producer surplus and Consumer surplus is maximised.

( Allocative efficiency occurs when marginal benefit equals marginal cost. At this point,Goods are distributed optimally in response to the needs of the Consumer. Consumers and producers are better off. Maximisation of total surplus ( producer surplus+consumer surplus takes )place.

Other options are incorrect.

> Marginal cost equals marginal benefit. It's not greater than marginal cost.

> Total revenue- total cost condition isn't a required condition of allocative efficiency.)

Note : Third option would have been a correct answer if it was consumer's maximum willingness to equals producer's minimum acceptable price of last unit of output.