TheDaliLama
Badges: 0
Rep:
?
#1
Report Thread starter 2 years ago
#1
Allocative Efficiency can occur in a perfectly competitive market. In a perfectly competitive market only normal profit will be made. Allocative efficiency can also occur in a Monopoly if the monopoly firm decides to produce at where MC=AR. In the monopoly example abnormal profits are made. Is one allocative efficiency better than another?
Thanks, The Dali
0
reply
matthewlacha134
Badges: 1
Rep:
?
#2
Report 2 years ago
#2
Hi, it depends on who you are considering; firms or consumers. For firms, obviously the monopoly case is better, but in the interests of consumers, the perfectly competitive would probably be best as the higher level of competition would increase efficiency due to the firms' need to survive. Hope this helps!
0
reply
economics4life
Badges: 1
Rep:
?
#3
Report 2 years ago
#3
Allocative efficiency is where P=MC, monopolies are extremely unlikely to do this as they restrict output to cause the price to rise. In perfect competition, yes normal profits in the long run, but abnormal or supernormal profits in the short run. Allocative efficiency is best for consumers because they are getting the good at the price that they want to pay for it, but abnormal profits for monopolies are beneficial because they can reinvest in research and development and are dynamically efficient. And, yes, perfect competition in the short run makes supernormal profits but they are unlikely to reinvest in new goods because new firms will enter the market (attracted to the opportunity to make abnormal profit) and drive the price down, so its beneficial to reinvest. The only reason why a monopoly would set prices that low is to drive out competitors (predatory pricing) or a charity, that wants to help people and not exploit them.
1
reply
X

Quick Reply

Attached files
Write a reply...
Reply
new posts
Back
to top
Latest
My Feed

See more of what you like on
The Student Room

You can personalise what you see on TSR. Tell us a little about yourself to get started.

Personalise

University open days

  • Sheffield Hallam University
    Get into Teaching in South Yorkshire Undergraduate
    Wed, 26 Feb '20
  • The University of Law
    Solicitor Series: Assessing Trainee Skills – LPC, GDL and MA Law - London Moorgate campus Postgraduate
    Wed, 26 Feb '20
  • University of East Anglia
    PGCE Open day Postgraduate
    Sat, 29 Feb '20

People at uni: do initiations (like heavy drinking) put you off joining sports societies?

Yes (422)
67.41%
No (204)
32.59%

Watched Threads

View All