When there are only perfectly competitive producers in a market economy, there will be an efficient allocation of resources (ignoring externalities)because:
A)even though excess profits are earned in some industries, capital is prevented from moving into those industries.
B)even though excess profits are earned in some industries, there will be excess losses earned in other industries.
C)some firms will produce too little output and other firms will produce too much output.
D)the prices of goods will tend to reflect their marginal costs of production.
E)none of the above.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, there are many buyers and sellers, and no individual producer or consumer can influence the price of the product. Each producer will produce up to the point where marginal cost equals price, and this will result in an efficient allocation of resources. The prices in the market will also reflect the marginal costs of production, ensuring that no firm earns excess profits. Thus, there will be no misallocation of resources due to price signals.

When There Are Only Perfectly Competitive Producers in a Market