Question

Will a perfectly competitive market display allocative efficiency? Why or why not?

Short answer

Yes, in a completely competitive market, allocative efficiency stays true.

Step-by-step solution

Allocative efficiency :

The locations on the production possibility curve that are not representing proper resource usage but are socially advantageous, with social cost and benefit being equal.

Explanation :

Profits are maximised in a completely competitive market when the price equals the marginal cost. The MC is the social cost of production, and the price is paid in exchange for a social benefit gained from the good. That is, profits are highest when social cost equals social benefit.