Which types of firms are allocatively inefficient in the long run?
Choose 1 answer:
(A) an oligopoly and a perfectly competitive firm
(B) a single price monopoly and monopolistic competition
(C) a perfectly competitive firm and monopolistic competition
(D) a perfect price-discriminating monopolist and monopolistic competition
(E) a perfect price discriminating monopolist and perfect competition

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Accepted Answer

∻Solution∻ ‖ a ⋮ Allocative Inefficiency: Allocative inefficiency occurs when the price of a good or service does not reflect the marginal cost (MC) of production, which is the cost of producing one additional unit. In a perfectly competitive market, price equals marginal cost (P = MC) in the long run, leading to allocative efficiency. ‖ ‖ b ⋮ Monopoly and Monopolistic Competition: In a single-price monopoly and monopolistic competition, firms have market power, which allows them to set prices above marginal cost (P > MC). This results in allocative inefficiency because the quantity of goods produced and consumed does not maximize total surplus. ‖ ∻Answer∻ ⚹ The types of firms that are allocatively inefficient in the long run are a single price monopoly and monopolistic competition. ⚹ ∻Key Concept∻ ⚹ Allocative Inefficiency in Market Structures ⚹ ∻Explanation∻ ⚹ Allocative inefficiency occurs in market structures where firms have the power to set prices above marginal cost, such as in a single price monopoly and monopolistic competition, leading to a misallocation of resources and a reduction in total surplus. ⚹◊What is the impact of allocative inefficiency on consumer surplus in different market structures in the long run?⍭ Generate me a similar question◊

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