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Question
Microeconomics
Posted 6 months ago
Which types of firms are allocatively inefficient in the long run?
Choose 1 answer:
(A) a perfect price discriminating monopolist and perfect competitio
(B) a perfectly competitive firm and monopolistic competition
(C) a single price monopoly and monopolistic competition
(D) an oligopoly and a perfectly competitive firm
(E) a perfect price-discriminating monopolist and monopolistic competition
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Answer from Sia
Posted 6 months ago
Solution
a
Allocative Efficiency: Allocative efficiency occurs when the price of a good or service is equal to the marginal cost of production (). This ensures that resources are allocated in a way that maximizes total surplus in the economy
b
Perfect Competition: In the long run, perfectly competitive firms are allocatively efficient because they produce where
c
Monopolistic Competition: In the long run, firms in monopolistic competition are allocatively inefficient because they produce where
d
Single Price Monopoly: A single price monopoly is allocatively inefficient because it restricts output to increase prices, resulting in
e
Oligopoly: Oligopolies can be allocatively inefficient due to collusion or strategic behavior that leads to
f
Perfect Price-Discriminating Monopolist: A perfect price-discriminating monopolist can be allocatively efficient because it captures all consumer surplus, producing where
Answer
(C) a single price monopoly and monopolistic competition
Key Concept
Allocative inefficiency occurs when .
Explanation
Both single price monopolies and firms in monopolistic competition produce where , leading to allocative inefficiency in the long run.
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