Match each market structure on the left with its corresponding long-run economic efficienc… — JAMB UTME

Match each market structure on the left with its corresponding long-run economic efficiency condition or consumer welfare outcome on the right.

Perfect CompetitionAchieves both allocative efficiency ( $P = MC$ ) and productive efficiency ( $P = \text{minimum } ATC$ ) in long-run equilibrium.
Pure MonopolyCauses allocative inefficiency ( $P > MC$ ) and a deadweight welfare loss while earning long-run economic profit protected by entry barriers.
Monopolistic CompetitionOperates with excess capacity in the long run ( $P > MC$ and $P > \text{minimum } ATC$ ) despite earning zero economic profit due to free entry.

Answer

Perfect Competition corresponds to achieving both allocative (

P = MC

) and productive (

P = \text{minimum } ATC

) efficiency. Pure Monopoly corresponds to allocative inefficiency (

P > MC

) and deadweight loss with protected economic profits. Monopolistic Competition corresponds to operating with excess capacity (

P > MC

and

P > \text{minimum } ATC

) alongside zero long-run economic profit.

Perfect competition achieves full economic efficiency (

P = MC = \text{minimum } ATC

). Pure monopoly causes allocative inefficiency (

P > MC

) and deadweight loss protected by entry barriers. Monopolistic competition results in excess capacity and allocative inefficiency despite earning zero economic profit in the long run due to free entry.

Step-by-Step Solution

Analyze the long-run efficiency criteria for Perfect Competition.

Firms are price takers facing a horizontal demand curve (

P = MR

). Long-run equilibrium occurs where

P = MR = MC = \text{minimum } ATC

, satisfying both allocative and productive efficiency.

Free entry/exit forces price down to the minimum point of the average total cost curve, while profit maximization ensures

P = MC

Analyze the long-run efficiency criteria for Pure Monopoly.

Monopolists face a downward-sloping market demand curve (

P > MR

). Profit maximization at

MR = MC

results in

P > MC

, which causes deadweight loss and misallocation of resources.

High barriers to entry allow the monopolist to sustain economic profits in the long run while charging a price above marginal cost.

Analyze the long-run efficiency criteria for Monopolistic Competition.

Free entry drives economic profit to zero (

P = ATC

), but product differentiation yields a downward-sloping demand curve. The tangent point with

ATC

occurs on its falling portion, causing excess capacity (

P > MC

and

P > \text{minimum } ATC

Firms produce less than the output level that minimizes average total cost, sacrificing productive efficiency for product variety.

Key Concept

Economic Efficiency and Consumer Welfare Across Market Structures

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