Match each market structure or market arrangement with its corresponding long-run economic… — JAMB UTME

Match each market structure or market arrangement with its corresponding long-run economic efficiency and consumer welfare outcome.

Perfect Competition (Long-Run)Achieves both allocative efficiency ( $P = MC$ ) and productive efficiency ( $P = \text{minimum } ATC$ ), maximizing consumer surplus.
Monopoly (Long-Run)Fails both allocative ( $P > MC$ ) and productive efficiency, resulting in significant deadweight loss and restricted output.
Monopolistic Competition (Long-Run)Fails allocative efficiency ( $P > MC$ ) and operates with excess capacity ( $P > \text{minimum } ATC$ ), but offers product variety to consumers.
Collusive OligopolyRestricts industry output to set price above marginal cost ( $P > MC$ ) to maximize joint profits, mimicking pure monopoly inefficiency.

Answer

Perfect Competition (Long-Run) matches with achieving allocative (

P = MC

) and productive (

P = \text{min } ATC

) efficiency; Monopoly (Long-Run) matches with failing both efficiency criteria and creating deadweight loss; Monopolistic Competition (Long-Run) matches with failing allocative efficiency and operating with excess capacity while providing product variety; Collusive Oligopoly matches with restricting industry output to set

P > MC

and maximize joint profit.

Each market structure is correctly paired according to its standard microeconomic efficiency benchmark: Perfect competition achieves full efficiency (

P = MC = \text{min } ATC

), monopoly causes deadweight loss (

P > MC

and

P > \text{min } ATC

), monopolistic competition exhibits excess capacity alongside product differentiation, and collusive oligopoly mimics monopoly output restriction.

Step-by-Step Solution

Evaluate Perfect Competition

In the long run, free entry/exit forces price to equal minimum ATC (

P = \text{min } ATC

, productive efficiency) and firm profit maximization sets price equal to marginal cost (

P = MC

, allocative efficiency).

Perfectly elastic demand at market price ensures optimal resource allocation and maximum consumer surplus.

Evaluate Monopoly

High entry barriers allow the monopolist to restrict output, charging

P > MC

and producing where

ATC

is not minimized.

This generates a deadweight loss, reducing consumer welfare below the socially optimal level.

Evaluate Monopolistic Competition

Tangency of the downward-sloping demand curve to ATC in long-run equilibrium results in

P > MC

and production to the left of minimum ATC (excess capacity).

While inefficient compared to perfect competition, consumer welfare benefits from product differentiation and variety.

Evaluate Collusive Oligopoly

Formal or informal agreements lead firms to restrict output and raise prices jointly.

Cartel behaviour replicates monopoly outcomes, transferring surplus from consumers to producers.

Key Concept

Comparison of Market Structures: Economic Efficiency and Consumer Welfare

Question

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Topics

More questions from this topic