In principle,a comparison of the long-run equilibrium of competitive and (single-price)monopoly industries leads to the following conclusion:
A)both the competitive industry and the monopoly will allocate resources efficiently.
B)the competitive industry is consistent with allocative efficiency whereas the monopoly is not.
C)neither industry is capable of allocative efficiency.
D)the competitive industry will achieve productive efficiency but the monopoly will not.
E)both the competitive industry and the monopoly will allocate resources inefficiently.

Question

Quizplus · Accepted Answer

In a competitive industry, the market forces of supply and demand determine the price and quantity produced, leading to allocative efficiency where resources are allocated to their most highly valued uses. In a monopoly, however, the firm has market power and can restrict output and raise prices, resulting in a higher price and lower quantity than what would be produced in a competitive market. This leads to a loss of allocative efficiency as resources are not allocated to their most highly valued uses. Therefore, the competitive industry is consistent with allocative efficiency whereas the monopoly is not.

In Principle,a Comparison of the Long-Run Equilibrium of Competitive and (Single-Price)monopoly