A Level Economics AQA Practice Exam

What outcome is achieved at the point where marginal cost equals price?

1. Maximum profit for the producer

2. Allocative efficiency in production

3. Complete resource allocation

4. Equilibrium in the labor market

The correct answer is: Allocative efficiency in production

The outcome achieved at the point where marginal cost equals price is allocative efficiency in production. This concept signifies that resources are being allocated in a way that maximizes societal welfare, where the price consumers are willing to pay for a good or service reflects the marginal cost of producing it. When marginal cost equals price, it indicates that the last unit produced costs the same amount as consumers are willing to pay for it. Producers are thus not incentivized to produce more or less of the good, ensuring that the quantity produced reflects consumer demand and that resources are used in their most valuable use. This equilibrium maximizes total welfare because it aligns production with consumer preferences. The other options, while related to economic outcomes, do not specifically correlate with the relationship between marginal cost and price in terms of allocative efficiency.