ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Under perfect competition market results allocative efficiency in both the long run and short run, because in perfect competition there is no economic profit, the producer does not operate to maximize profit like a monopoly.

Detailed explanation-2: -Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. In fact, these two types of efficiency are the reason we call it a perfectly competitive market.

Detailed explanation-3: -A firm is allocatively efficient when its price is equal to its marginal costs (that is, P = MC) in a perfect market.

Detailed explanation-4: -A monopolistically competitive firm is not allocatively efficient because it does not produce where P = MC, but instead produces where P > MC. Thus, a monopolistically competitive firm will tend to produce a lower quantity at a higher cost and to charge a higher price than a perfectly competitive firm.

Detailed explanation-5: -How does perfect competition lead to allocative and productive efficiency? Perfect competition leads to allocative and productive efficiency because prices reflect consumers preferences and firms are motivated by profit. when a good or service is produced at lowest possible cost.