With a natural monopoly, the normal profit price is ________ and the competitive price is ________.Multiple Choiceallocatively efficient; not allocatively efficientnot allocatively efficient; allocatively efficientnot allocatively efficient; not allocatively efficientallocatively efficient; allocatively efficient
Question
With a natural monopoly, the normal profit price is ________ and the competitive price is ________.Multiple Choiceallocatively efficient; not allocatively efficientnot allocatively efficient; allocatively efficientnot allocatively efficient; not allocatively efficientallocatively efficient; allocatively efficient
Solution
The correct answer is "not allocatively efficient; allocatively efficient".
Here's why:
A natural monopoly occurs when a single firm can serve the entire market demand at a lower cost than any combination of two or more smaller firms. This is often due to high fixed costs or unique production processes.
In such a case, the price set by the monopoly (the normal profit price) is not allocatively efficient because it is set above the marginal cost. Allocative efficiency occurs when goods and services are distributed according to consumer preferences, which is typically where price equals marginal cost.
On the other hand, in a competitive market, firms are price takers and must set their price equal to the marginal cost to stay in business. Therefore, the competitive price is allocatively efficient.
Similar Questions
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.
Fill in the Blank QuestionFill in the blank question.Monopoly yields neither efficiency nor allocative efficiency.
Multiple Choice QuestionMonopolistically competitive firms do not achieve allocative efficiency because the Blank______.Multiple choice question.output produced is less than optimal and consumers pay a lower than competitive price, causing inefficient use of resources for societyprice for a monopolistically competitive firm is lower than the average costoutput produced is more than optimal and consumers pay a lower than competitive price, causing inefficient use of resources for societyprice for a monopolistically competitive firm exceeds the marginal cost
The equilibrium output produced by an oligopolistic firm is:Multiple select question.not allocatively efficient.allocatively efficient.not productively efficient.productively efficient.
ultiple Select QuestionSelect all that applyIn the long run, a monopolistic competitor fails to achieve which of the following?Multiple select question.Excess capacityProductive efficiencyAllocative efficiencyA normal profit
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.