Question

In a society that practices full cost pricing in the marketplace, what would you expect to see?

Answer 1

In a perfectly competitive market, productive efficiency and allocative efficiency are two concepts achieved in the long run. In fact, these two are the reason why we call it a perfectly competitive market.

• Long-run equilibrium in competitive markets meets two important conditions which are allocative efficiency and productive efficiency.

• These two conditions have got some important implications. First is that resources are allocated to their best alternative use and second one is that they provide the maximum satisfaction attainable by society.

  For market structures such as monopoly, oligopoly and monopolistic competition, firms will not always produce at the minimum of average cost, nor will they always set price equal to marginal cost. Therefore, these other competitive situations will never produce productive and allocative efficiency.

  Furthermore, talking about real world markets, they consists of issues which are assumed far away in the model of perfect competition, like pollution, inventions of new technology, poverty (which might make some individuals unable to pay for their basic necessities of life), discrimination in labor markets, some government programs like education and national defense, and buyers and sellers who must deal with imperfect and unclear information.