Economic efficiency in a market requires that the market be allocatively and technically efficient. The allocative efficiency requirement means that the right amount of a good or service is being produced—marginal utilities per dollar of resource used are all equal. That result means that prices are equal to marginal costs and consumers are maximizing their own satisfaction. We cannot be better off with different levels of production. The following questions will help you understand how a monopoly is not operating at an allocatively efficient level. Use the following information on a monopoly and perfectly competitive firms to answer the following six questions: Consider a monopoly where consumers are currently consuming where the marginal utility is 10 units of utility for the good. The price of the product is $5. The marginal cost of producing the good is $2.00. Then consider perfectly competitive firms where consumers are currently consuming where the marginal utility is 20 units of utility for the perfectly competitive product. The price of the product is $10. At current production levels, the marginal cost of producing the good
10.6 Economic Efficiency
Economic
The following questions will help you understand how a
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