Enter the marginal costs (\$) and the price (\$) into the calculator to determine the Allocative Efficiency.

## Allocative Efficiency Formula

The following formula is used to calculate the Allocative Efficiency.

Ea = MC/P *100

• Where Ea is the Allocative Efficiency (%)
• MC is the marginal costs (\$)
• P is the price (\$)

## How to Calculate Allocative Efficiency?

The following two example problems outline how to calculate the Allocative Efficiency.

Example Problem #1:

1. First, determine the marginal costs (\$). In this example, the marginal costs (\$) is given as 35.
2. Next, determine the price (\$). For this problem, the price (\$) is given as 40.
3. Finally, calculate the Allocative Efficiency using the equation above:

Ea = MC/P *100

Inserting the values from above and solving the equation:

Ea = 35/40 *100 = 87.5 (%)

Example Problem #2:

Using the same process as above, first define the variables required by the formula. In this case, these values are:

marginal costs (\$) = 60

price (\$) = 80

Entering these values yields:

Ea = 60/80 *100 = 75 (%)