Which of the following is likely to result in allocative inefficiency? aAn oligopoly market structure bA firm producing at the level of output where price is equal to marginal cost cA perfectly competitive market in long-run equilibrium with no externalities dA perfectly price-discriminating monopoly
Question
Which of the following is likely to result in allocative inefficiency? aAn oligopoly market structure bA firm producing at the level of output where price is equal to marginal cost cA perfectly competitive market in long-run equilibrium with no externalities dA perfectly price-discriminating monopoly
Solution
The answer is a) An oligopoly market structure.
Here's why:
a) An oligopoly market structure: This is likely to result in allocative inefficiency. In an oligopoly, a few large firms dominate the market and can influence prices, often resulting in higher prices and lower output than in a perfectly competitive market. This leads to allocative inefficiency because resources may not be used where they are most valued by society.
b) A firm producing at the level of output where price is equal to marginal cost: This is a condition for allocative efficiency, not inefficiency. When a firm produces at a level where price equals marginal cost, it means that the value of the product to consumers is equal to the cost of producing an additional unit. This is the most efficient allocation of resources.
c) A perfectly competitive market in long-run equilibrium with no externalities: This is also a condition for allocative efficiency. In a perfectly competitive market, firms cannot influence prices and will produce at a level where price equals marginal cost. In the long run, firms will enter or exit the market until economic profits are zero, which is also efficient.
d) A perfectly price-discriminating monopoly: A perfectly price-discriminating monopoly is able to charge each consumer their maximum willingness to pay. This results in all consumer surplus being transferred to the producer, but it does not result in allocative inefficiency. The monopoly will still produce where price equals marginal cost, just like in a perfectly competitive market.
Similar Questions
Allocative inefficiency due to unregulated monopoly is characterized by the condition:Multiple ChoiceP = MC.P = MR.P > MC.P > AVC.
The condition for allocative efficiency is violated when afirms are price makers( price searchers) bshort-run profits exist in a competitive industry cprice equals average total cost dthe market demand curve is inelastic in a competitive industry
Economic efficiency in a market requires that the market be allocatively and technically efficient. The allocative efficiency requirement means that the right amount of a good or service is being produced—marginal utilities per dollar of resource used are all equal. That result means that prices are equal to marginal costs and consumers are maximizing their own satisfaction. We cannot be better off with different levels of production.The following questions will help you understand how a monopoly is not operating at an allocatively efficient level. Use the following information on a monopoly and perfectly competitive firms to answer the following six questions: Consider a monopoly where consumers are currently consuming where the marginal utility is 10 units of utility for the good. The price of the product is $5. The marginal cost of producing the good is $2.00. Then consider perfectly competitive firms where consumers are currently consuming where the marginal utility is 20 units of utility for the perfectly competitive product. The price of the product is $10. At current production levels, the marginal cost of producing the good is $10.Question 10.19HomeworkUnansweredDue Today, 11:59 PMBased on the text above, calculate the marginal utility per dollar spent by consumers in a monopolistic industry.
Which of the following can eliminate the inefficiency inherent in monopoly pricing?Group of answer choicesArbitragePrice discriminationCost-plus pricingRegulations that force monopolies to reduce their levels of output
Imagine two firms with identical cost structures that do not exhibit economies of scale at high levels of production. One is competing in a perfectly competitive market and one is a monopoly. In the long run which of the following is true?Group of answer choicesThe monopoly will charge a higher price than the perfectly competitive firmThe monopoly and the perfectly competitive firm will produce the same quantityThe monopoly and the perfectly competitive firm will charge the same priceThe monopoly will sell a higher quantity than the perfectly competitive firm
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