Consider three firms, A, B and C, all producing kilos of potatoes (per year) in a perfectly competitive market. The diagrams below show marginal cost curves for each of the three firms.
FIGURE 12-1
Refer to Figure 12-1. Suppose each of Firms A, B, and C are producing 500 kilos of potatoes. Which of the following statements correctly describes the productive efficiency of this industry?
◦ Productive efficiency would be achieved if Firm B produced all the output, since it has the lowest MC for the production of 500 kilos.
◦ The total output of 1500 kilos is the productively efficient output for this industry, so no reallocation is necessary.
◦ It is possible to reduce the total cost of the given output by reallocating production among the three firms.
◦ It is not possible to say whether this industry is productively efficient because we do not know the market price of the product.
◦ It is not possible to say whether this industry is productively efficient because we do not know the average costs for each firm.
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