When there is production, a competitive equilibrium is not Pareto optimal unless there are increasing returns to scale.

Question

Quizplus · Accepted Answer

A competitive equilibrium is not Pareto optimal when there are market failures such as externalities, public goods, and imperfect information. Increasing returns to scale may lead to natural monopolies, but it is not directly related to the Pareto optimality of a competitive equilibrium.

When There Is Production, a Competitive Equilibrium Is Not Pareto