in an overall evaluation of pure competition and oligopoly, which will come closer to (a) allocative...

in an overall evaluation of pure competition and oligopoly, which will come closer to (a) allocative efficiency and (b) which is more likely to foster technological change?

Expert Solution

1) Allocative efficiency is situation when in all parts of the economy the price equals marginal cost. Thus at the ruling price, producer as well as consumer surplus are maximised. Under perfect competition MC equals price, and thus allocative efficiency occurs. Oligopoly are considered to be allocative and productively inefficient because price will be more than the marginal cost and output will be less than the minimum average-cost level of output.

2) Oligopoly tends to more likely to foster changes in technology. Under oligopoly every seller can exercise a significant influence on the price-output policies of the competitor. Every seller hold the potential to influence thus rivals cannot ignore the likely adverse effect on them of a given change in the price-output policy of any single manufacturer. It acts as a prime source of innovations, and innovations foster technological advances and growth in an economy

Rahul Sunny answered 1 year ago

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in an overall evaluation of pure competition and oligopoly, which will come closer to (a) allocative...

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