(True or False) Monopolists are neither productively efficient nor allocative efficient, and perfect competition is both...

(True or False) Monopolists are neither productively efficient nor allocative efficient, and perfect competition is both productively efficient and allocatively efficient. However, Pareto optimal requires it is impossible to make one person better off without making at least one other worse off. And expalin why

Solutions

Expert Solution

Answer : 2) The answer is "True".

The productive efficiency occur at that output level where MC (Marginal Cost) = Minimum ATC (Average Total Cost) occur. The monopolist always produce that output level where ATC is not minimum. Hence monopolists are not productively efficient. But for perfect competition in long run the ATC become minimum on production level. For this reason in long run the perfect competition become productively efficient.

The allocative efficiency occur at that output level where MC = AR (Average Revenue) occur. For monopolist the MR curve is half of MR (Marginal Revenue) curve. This means that for monopolist, MR = 1/2 * AR. A monopolist always produce that output level where MR = MC occur. As for monopolist MR is half of AR curve hence at monopolists' production level MC = AR does not occur. For this reason the monopolists are not allocatively efficient. But for perfect competition at production level MC = AR occur. So, the perfect competition is allocatively efficient.

At Pareto optimal outcome level all available persons gets their efficient outcomes. In this situation if modifiation is required then at least one person worse off is required to make another person better off. Therefore, the given statement is true.

Rahul Sunny answered 1 week ago

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