Question

Perfect competition displays allocative efficiency because the social benefits of additional production, as measured by the price that people are willing to pay, are in balance with the ________ to society of that production.

A. marginal revenues
B. marginal costs
C. total costs

Answer 1

B. marginal costs

Step-by-step explanation:

Allocative efficiency means production and consumption occurs at a point where (marginal) social benefits equal (marginal) social costs.

And in perfectly competitive market, firms maximize profit by choosing to produce at the quantity where marginal revenue equals marginal cost.

Note: The marginal revenue is the price, as perfectly competitive firms are price takers (there are many, many firms and how much each individual firm choose to produce does not affect price)