Question

1. If i am entering into a perfectly competitive market, what would be my main decision?

a. None of the above

b. Both Price and quantity decision for profit maximization

c. How much price to charge for Profit Maximization.

d. How much quantity to produce to maximize my Profit

.

2. Allocative efficiency in perfect competition refers to

a. Maximum producer surplus

b. Maximum consumer surplus

c. Maximum output per input

d. Maximum consumer and producer surplus

.

Answer 1

Q1) The answer is (d) How much quantity to produce to maximize my Profit

In perfect competition, the firms are price takers and have no influence over the price. Thus, (b) and (c) are false.They only choose quantity at a point where the MR = MC (which happens to be (P = MC)

Q2) The answer is (b) maximum consumer surplus.

Since the output is produced up to the point where P = MC, the consumer surplus is maximized and consumers' preferences are well represented. Other market structures do not achieve this. All other options are incorrect as they do not reflect the idea fo allocative efficiency.