Question

H) Do you agree that companies under perfect competition as well as monopoly are enjoying productive efficiency and allocative efficiency? what is condition for productive efficiency and allocative efficiency? Would be greatly appreciated if answer is in 5sentences and by your own, thank you.

Answer 1

A firm can be called productive efficient when they are producing at the lowest point of the average cost curve and they are considered as allocative efficient when the price of the good is equal to the marginal cost.

A firm under can be considered as both allocative and productive efficient because they produce at the lowest point of the average total cost and at that point the price and the marginal cost are equal. On the other hand the monopoly produce at the point where the average cost curve is still declining and the price is tangent to it and the price is also double the marginal cost of the good. making a monopoly both allocative and productive inefficient.