Perfect competition is socially efficient and monopoly is not because under perfect competition price is ______ while under monopoly price is ______.

Question

Quizplus · Accepted Answer

Under perfect competition, firms compete vigorously to produce at the lowest possible cost. Therefore, in the long run, the price paid by consumers will be equal to the marginal cost of production. This results in a socially efficient allocation of resources. On the other hand, under monopoly, the single firm in the market has the power to set prices higher than the marginal cost of production, resulting in a deadweight loss to society. Therefore, A is the correct answer as under perfect competition, the price is equal to MC which is socially efficient, and under a monopoly, the price is greater than MC, which is inefficient.

Perfect Competition Is Socially Efficient and Monopoly Is Not Because