efficiency - consumers (societys) total satisfaction is...

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Notes on Efficiency: P Pure vs. Imperfect Competition P M MC 1 . P vs. Q Given graph, imperfect competition L P m , Q m P C Perfect Comp Perfectly competitive pricing requires P = MC MR D which occurs at P C , Q C Q 0 Q M Q C 2 . Allocative Efficiency As shown above, the imperfectly competitive firm restricts output because it is in its own private best interest. But is it society’s best interest? If Q increases beyond Q M L P > MC for units Q M to Q C L Consumers are willing to pay more for additional units of the good than the opportunity cost (MC) of producing those additional units. L Society values additional units of this good more than the alternative goods that these resources could produce. L Society will get greater overall satisfaction if more resources are transferred to production of this good. L Satisfaction continues to increase as resources are added until P= MC. At this point,
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Unformatted text preview: consumers (societys) total satisfaction is maximized. It is said that Allocative Efficiency is achieved at this point. Imperfect competition produces too little to be allocatively efficient, in both short and long run. Perfect competition achieves allocative efficiency, in both short and long run. 3 . Productive (Technical) Efficiency Technical efficiency occurs when resource are being used in their most economical way. Taking all resources into account, technical efficiency is achieved at min. ATC; this frees up the maximum possible resources for other uses. Short run: Neither perfect nor imperfect competition necessarily achieves technical efficiency. 2 Long run: Perfect competition is technically efficient because P = min ATC. Imperfect competition is NOT technically efficient because P > min ATC for all 3 market structures....
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This note was uploaded on 10/26/2009 for the course ECON 180-004-20 taught by Professor Bresnock during the Fall '09 term at UCLA.

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efficiency - consumers (societys) total satisfaction is...

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