Both the perfectly competitive firm and the monopolist produce at the output where marginal revenue equal...

Both the perfectly competitive firm and the monopolist produce at the output where marginal revenue equal marginal cost, but only the perfect competitive firm achieves allocative efficiency. Explain why?

Expert Solution

As we know both the monopolist and the perfectly competitive firm produces the output at that level where marginal revenue is equal to the marginal cost but only the perfectly competitive firm achieves allocative efficiency. The reason behind this is that, the perfectly competitive firm faces a lots of competition from other sellers who are selling exactly the same commodity and each firm in the perfect competition has no control over the prices as the price is by the industry. On the other hand, monopolist is a single seller to the market and he has full control over the market and the price charged by the monopolist is always greater than the marginal cost, whereas. firms in the perfect competition cannot charge the price greater than the marginal cost because if any firm tries to charge the price which is greater than the marginal cost then no one will buy from that firm because there are other firms who are selling exactly the same commodity at the price being equal to marginal cost.

Rahul Sunny answered 7 months ago

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