Does Perfect Competition always result in an efficient allocation of resources?
Hi,
Could someone help me out, here is the essay question below -
"Critically assess the proposition that perfect competition will always result in an effi cient allocation of resources, no matter what good or service is being produced and consumed?"
Could someone help me out, here is the essay question below -
"Critically assess the proposition that perfect competition will always result in an effi cient allocation of resources, no matter what good or service is being produced and consumed?"
Original post by Deavk006
Hi,
Could someone help me out, here is the essay question below -
"Critically assess the proposition that perfect competition will always result in an effi cient allocation of resources, no matter what good or service is being produced and consumed?"
Could someone help me out, here is the essay question below -
"Critically assess the proposition that perfect competition will always result in an effi cient allocation of resources, no matter what good or service is being produced and consumed?"
It achieves allocative efficiency because in the SR and LR as MC=AR.
It achieves productive efficiency in the LR as MC=AC.
In the long run they will be dynamically efficient because they will be producing at the lowest cost to remain competitive and make normal profit.
Therefore in the long run perfect competition is always efficient.
Original post by mrbr2671999
It achieves allocative efficiency because in the SR and LR as MC=AR.
It achieves productive efficiency in the LR as MC=AC.
In the long run they will be dynamically efficient because they will be producing at the lowest cost to remain competitive and make normal profit.
Therefore in the long run perfect competition is always efficient.
It achieves productive efficiency in the LR as MC=AC.
In the long run they will be dynamically efficient because they will be producing at the lowest cost to remain competitive and make normal profit.
Therefore in the long run perfect competition is always efficient.
Not likely to be dynamically efficient (at the a level definition) as there is no motivation for companies to innovate, due to unavailability of protectionism and perfect information meaning other companies could quickly copy.
Original post by AlexS101
Not likely to be dynamically efficient (at the a level definition) as there is no motivation for companies to innovate, due to unavailability of protectionism and perfect information meaning other companies could quickly copy.
Yeah I agree there actually. If it was in your essay maybe you could counterbalance that it depends how far in the long run. The greater the time in the market the less dynamically efficient you'll be.
Original post by Deavk006
Brilliant thats great!, any more disadvantages other than a lack of dynamic efficiency + innovation/invention?
You could mention that due to perfect competition having a lot of firms(and the existence of no barriers to entry) implies there will be no economies of scale - and so although firms may be efficient they may be producing at a higher price than would be possible in a more concentrated market.
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