In which of the following market structures do firms produce the welfare-maximizing level of output?
A)perfect competition
B)monopolistic competition
C)monopoly
D)Both a and b are correct.

Question

Quizplus · Accepted Answer

In perfect competition, firms produce at the point where marginal cost equals marginal revenue, which is the welfare-maximizing level of output. This is because in perfect competition, there are many firms producing identical products, and the market price is determined by the intersection of supply and demand curves. Therefore, each firm is a price taker and has no power over the market price, and can only produce at the level where it can just cover its costs. Any deviation from this level of output would result in either excess capacity or inefficiency. In monopolistic competition and monopoly, firms will not produce the welfare-maximizing level of output as they have some degree of market power and can influence the price in some way.

In Which of the Following Market Structures Do Firms Produce