Perfectly competitive market

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Is a "perfectly competitive market" an efficient mechanism for the allocationof scarce resources? When it is, explain why. When it is not, document reasonsfor either inefficient or undesirable outcomes.

Describe a real-world situation (either in the private sector or public sector) in which your answer to (A) could have been used to achieve either a moreefficient or more desirable outcome for the relevant stakeholders.

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There is a theorem in economics called the efficiency theorem which explains how competitive market leads to Pareto efficiency being attained where resource allocation is efficient. A perfectly competitive market leads to three types of efficiencies. Production efficiency is where the active firms are the suppliers who supply at the least cost; while others are priced out of the market due to heavy competition. In the long run, as shown in figure, all the firms in the competitive market will be producing at the lowest optimal point of the long run average cost curve, implying that the productive resources are efficiently deployed.

Reference no: EM13543751

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