Question

are perfect conpetion, monopoly, and monopolistic competition markets mind about efficiency in resource utlization? how are resources emphrd in each of the market structures?

Answer 1

Perfect Competition

Markets in perfectly competitive equilibrium achieve social economic efficiency because, at the intersection of demand and supply curves, conditions for both productive efficiency and allocative efficiency are met. At the competitive market clearing price, buyers and sellers engage in voluntary exchange that maximizes social surplus.

Allocative efficiency under perfect competition

Because MC=MB, allocative efficiency in a perfectly competitive industry must occur at the equilibrium output level determined by the intersection of demand and supply. Perfectly competitive markets achieve allocative efficiency because the optimal amount of the good is produced and this amount is rationed/allocated to the highest-valued users (those who would pay the price for the good).

Productive efficiency under perfect competition

Occurs when firms produce on their short or long term expansion paths because input levels on expansion paths minimize the total cost of producing any particular level of output. Economic profit cannot be maximized unless total cost is minimized for the profit-maximizing output level, thus, firms want to operate on their expansion path.

Monopoly

Inefficiency in Monopolies

X inefficiency

The lack of competition may give a monopolist less incentive to invest in new ideas. Even if the monopolist benefits from economies of scale, they have little incentive to control their costs.

Allocative Inefficiency

The monopoly price is assumed to be higher than both marginal and average costs leading to a loss of allocative efficiency and a failure of the market. It occurs when P = MC. This efficiency is not achieved because price( what product is worth to consumers) is above MC (opportunity cost of product).

Productive Inefficiency
It 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.

Monopolistic Competition

Allocative Ineffeciency

Monopolistically competitive firms do not achieve allocative efficiency because output produced is less than optimal and consumers pay a higher than competitive price, causing inefficient use of resources for society.

Productive Inefficiency

Productive efficiency in monopolistically competitive markets does not occur in the long run because firms set the price on the demand curve where MR=MC to maximize economic profit, making output less than optimal from society's perspective.