Check Your Understanding
Multiple Choice:
1. The condition that P=MC is the direct requirement for which type of efficiency?
a) Distributive efficiency
b)Technical Efficiency
c) Efficiency in production
d) Efficiency in exchange
e) Allocative efficiency
2. Monopolistic competition is said to be inefficient because
a) The long run price is above minimum average total cost
b) Long-run profits are positive
c) Firms engage in collusive behavior
d) There exist no barriers to entry
e) There exist diseconomies of scale
3. Productive efficiency is assured if you choose __ ; allocative efficiency is ensured if you choose --
a) Any point within the PPF -- any point on the PPF
b) Any point on the PPF -- any point within the PPF
c) Any point on the PPF -- the point on the PPF that society most desires.
d) Both blanks must be filled in by the same phrase, because there is no difference between
productive and allocative efficiency
e) None of the above are correct
Free Response:
Follow this link and do question number 3.
http://apcentral.collegeboard.com/apc/public/repository/ap08_micro_econ_frq.pdf
The answer is here:http://www.collegeboard.com/prod_downloads/ap/students/economics/ap08_microecon_sgs.pdf
Answers to the Multiple Choice:
1. E
The definition of allocative efficiency is where the Price intersects with the Marginal cost curve.
2. A
Monopolies do not engage in collusive behavior, because they are the only firm in the industry. Oligopolies engage in collusive behavior. There also are many barriers to entry in a monopolistic industry. Long run profits being positive would not be a reason for a monopoly to be inefficient. Also, in monopolies exist economies of scale, not diseconomies of scale. That only leaves A).
3. C
For productive efficiency to occur, the point must be on the productive possibility frontier(PPF). If the point was inside it, it would be inefficient, and operating outside of it would be impossible. Allocative efficiency must also be on the PPF in order to be operating efficiently, but at the point in which society most desires, because allocative efficiency must be distributing goods in a way that is best for all parties involved.
1. The condition that P=MC is the direct requirement for which type of efficiency?
a) Distributive efficiency
b)Technical Efficiency
c) Efficiency in production
d) Efficiency in exchange
e) Allocative efficiency
2. Monopolistic competition is said to be inefficient because
a) The long run price is above minimum average total cost
b) Long-run profits are positive
c) Firms engage in collusive behavior
d) There exist no barriers to entry
e) There exist diseconomies of scale
3. Productive efficiency is assured if you choose __ ; allocative efficiency is ensured if you choose --
a) Any point within the PPF -- any point on the PPF
b) Any point on the PPF -- any point within the PPF
c) Any point on the PPF -- the point on the PPF that society most desires.
d) Both blanks must be filled in by the same phrase, because there is no difference between
productive and allocative efficiency
e) None of the above are correct
Free Response:
Follow this link and do question number 3.
http://apcentral.collegeboard.com/apc/public/repository/ap08_micro_econ_frq.pdf
The answer is here:http://www.collegeboard.com/prod_downloads/ap/students/economics/ap08_microecon_sgs.pdf
Answers to the Multiple Choice:
1. E
The definition of allocative efficiency is where the Price intersects with the Marginal cost curve.
2. A
Monopolies do not engage in collusive behavior, because they are the only firm in the industry. Oligopolies engage in collusive behavior. There also are many barriers to entry in a monopolistic industry. Long run profits being positive would not be a reason for a monopoly to be inefficient. Also, in monopolies exist economies of scale, not diseconomies of scale. That only leaves A).
3. C
For productive efficiency to occur, the point must be on the productive possibility frontier(PPF). If the point was inside it, it would be inefficient, and operating outside of it would be impossible. Allocative efficiency must also be on the PPF in order to be operating efficiently, but at the point in which society most desires, because allocative efficiency must be distributing goods in a way that is best for all parties involved.