Question 2 a Perfect competition is used in benchmarking allocative efficiency

Question 2 a perfect competition is used in

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Question 2 a) Perfect competition is used in benchmarking allocative efficiency because it focuses on the optimal distribution of services and goods as well as customers’ preferences.
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MICROECONOMICS 3 Source: (Frank et al., 2018) As outlined in the figure above, firms in perfect competition markets function at allocative efficient levels given that at Q1, P=MC. The prices buyers are willing to pay correspond to the marginal utility they receive. b) Monopolies do not have allocative efficiency because they have market power that allows them to increase prices beyond the marginal cost of production to lower customer surplus.
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MICROECONOMICS 4 Here, the monopolies set prices of Pm, which is allocatively inefficient since at Qm output, prices is higher than MC. Source: ( Bade & Parkin, 2017) Question 5 i) Constant cost industry or firm is one whereby external diseconomies and economies are at equilibrium. The figure below shows the long run equilibrium of a firm and industry functioning under constant cost. In this structure, no matter how many firms join or leave the market, all firms maintain similar sets of cost curves (LMC and LAC) with which it started.
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  • Fall '15
  • Mr. Njoroge
  • Economics, Bade & Parkin

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