Is monopoly productively and allocatively efficient?

Is monopoly productively and allocatively efficient?

Monopoly is productively efficient (no other firm in the market so industry has the same MC). It does not have allocative efficiency because P > MC. The only exception to this rule is a monopoly with perfect price discrimination that will charge every consumer the maximum that they are willing to pay.

What is the allocatively efficient quantity in a monopoly?

Allocative efficiency is a social concept. It refers to producing the optimal quantity of some output, the quantity where the marginal benefit to society of one more unit just equals the marginal cost.

Do monopolies display productive efficiency?

Even though monopolistic competition does not provide productive efficiency or allocative efficiency, it does have benefits of its own. Product differentiation is based on variety and innovation.

What is the allocatively efficient output level?

What is Allocative Efficiency? Allocative efficiency is the level of output where marginal cost is as close as possible to the marginal benefits. It means that the price of the product or service is close to the marginal benefit that one gets from using that product or service.

Why is monopolistic competition not allocatively efficient?

A monopolistically competitive firm is not allocatively efficient because it does not produce where P = MC, but instead produces where P > MC. Thus, a monopolistically competitive firm will tend to produce a lower quantity at a higher cost and to charge a higher price than a perfectly competitive firm.

Where is productive efficiency on a monopoly diagram?

Since the marginal cost curve always passes through the lowest point of the average cost curve, it follows that productive efficiency is achieved where MC= AC. The diagrams in Figure 1 show the long run equilibrium positions of the firm in perfect competition and the monopolist.

Why monopoly is allocative inefficient?

The Allocative Inefficiency of Monopoly. Allocative Efficiency requires production at Qe where P = MC. A monopoly will produce less output and sell at a higher price to maximize profit at Qm and Pm. Thus, monopolies don’t produce enough output to be allocatively efficient.

What is productive and allocative efficiency?

Summary: Productive efficiency is concerned with the optimal method of producing goods; producing goods at the lowest cost. Allocative efficiency is concerned with the optimal distribution of goods and services.

Why is monopolistic competition productively inefficient?

A monopolistically competitive market is productively inefficient market structure because marginal cost is less than price in the long run. Monopolistically competitive markets are also allocative-inefficient, as the firm charges prices that exceed marginal cost.

What is meant by productive and allocative efficiency?

Productive efficiency occurs when a business focuses on producing a good at the lowest possible cost. By contrast, allocative efficiency looks to optimize how the goods are distributed. To explain, a business could produce 10 million units of Product A for $2.

Does a monopolist achieve productive efficiency and or allocative efficiency in long run equilibrium Why or why not?

NO. Neither allocative or productive efficiency will be achieved by monopolistically competitive firms in the long run. We know that allocative efficiency occurs where MB=MC (or MSB=MSC). On the graph MSB is measured by the demand (or price) curve and the MSC is measured by the MC curve.

Why is monopolistic competition more efficient than monopoly?

Monopolistic competition is more efficient than monopoly is:-the firm’s demand curve is more elastic because it has less market power to setits price. -The monopolistically competitive firms will set a lower price and produce morethan the monopoly; there is a smaller deadweight loss.

How do you know if a firm is allocatively efficient?

A firm is allocatively efficient when its price is equal to its marginal costs (that is, P = MC) in a perfect market.

How is productive efficiency achieved in monopoly?

Productive efficiency: occurs where P= min ATC. Monopoly firms will not achieve productive efficiency as firms will produce at an output which is less than the output of min ATC. X-inefficiency may occur since there is no competitive pressure to produce at the minimum possible costs.

What is the productively efficient output?

Productive efficiency represents the maximum output of a product given scarce resources. The production of any additional units results in opportunity costs—one of which is the reduced output of another product. This metric focuses entirely on monetary costs and resources.

Why is monopolistic competition not productively efficient?

A monopolistically competitive firm is not productively efficient because it does not produce at the minimum of its average cost curve. A monopolistically competitive firm is not allocatively efficient because it does not produce where P = MC, but instead produces where P > MC.

How is monopoly inefficient?

Some modern economists argue that a monopoly is by definition an inefficient way to distribute goods and services. This theory suggests that it obstructs the equilibrium between producer and consumer, leading to shortages and high prices. Other economists argue that only government monopolies cause market failure.

How is monopolistic competition more efficient than monopoly?

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market?

Which of the following describes a difference between allocative efficiency and productive efficiency in a perfectly competitive market? Allocative efficiency is achieved in the short run and the long run. Productive efficiency is achieved only in the long run.

Why are monopolies efficient?

Firms benefit from monopoly power because: They can charge higher prices and make more profit than in a competitive market. The can benefit from economies of scale – by increasing size they can experience lower average costs – important for industries with high fixed costs and scope for specialisation.