Allocative efficiency is achieved when firms produce goods and services:

• A. at the lowest possible average total cost
• B. using the maximum amount of available resources
• C. at the combination where marginal benefit equals marginal cost
• D. in equal quantities regardless of consumer preferences

Answer: (C)

Verified step by step guidance

1. Understand the concept of allocative efficiency: it occurs when resources are distributed in a way that maximizes the net benefit to society, meaning the goods produced are exactly those most desired by consumers.
2. Recall that allocative efficiency is achieved when the value consumers place on a good (marginal benefit) equals the cost of producing one more unit of that good (marginal cost).
3. Express this condition mathematically as: \(\text{Marginal Benefit} = \text{Marginal Cost}\).
4. Recognize that producing at the lowest possible average total cost relates to productive efficiency, not allocative efficiency, so it is a different concept.
5. Conclude that the correct condition for allocative efficiency is producing at the combination where marginal benefit equals marginal cost, reflecting consumer preferences and optimal resource allocation.