What type of efficiency is achieved when the price equals the marginal cost in a market structure?

When the price equals the marginal cost in a market structure, allocative efficiency is achieved. This condition indicates that the resources in the economy are being distributed in such a way that maximizes total welfare. In other words, the prices reflect the true value or benefit that consumers derive from the last unit of a good or service produced.

At this point, the amount consumers are willing to pay for a product matches the cost of producing one additional unit of that product. This balance ensures that resources are not wasted; if the price were above marginal cost, it would imply that consumers value the product more than it costs to make, suggesting an opportunity for increased production. Conversely, if the price is below marginal cost, it indicates that the resources could be better allocated elsewhere.

Normal profits refer to the minimum level of profit necessary for a company to remain competitive in the market, while marginal cost pricing specifically describes a pricing strategy rather than a type of efficiency. Productive efficiency, on the other hand, occurs when goods are produced at the lowest possible cost, which is distinct from the allocative efficiency attained through the equalization of price and marginal cost. Thus, the correct context for the scenario presented is indeed allocative efficiency.