In comparing long-run market structures, which of the following statements correctly expla… — JAMB UTME

In comparing long-run market structures, which of the following statements correctly explains why consumer welfare is lower under pure monopoly than under perfect competition?

The pure monopolist restricts output and charges a price exceeding marginal cost ( $P > MC$ ), whereas the competitive firm expands output until price equals marginal cost ( $P = MC$ ).Cevap
B
The pure monopolist maximizes profit where marginal revenue equals price ( $MR = P$ ), whereas the competitive firm maximizes profit where marginal revenue is less than price ( $MR < P$ ).
C
The pure monopolist produces at the minimum point of its average total cost curve ( $P = \text{min } ATC$ ), whereas the competitive firm produces with excess capacity.
D
The pure monopolist maximizes combined consumer and producer surplus, whereas the competitive firm generates deadweight loss.

Cevap

The pure monopolist restricts output and charges a price exceeding marginal cost (

P > MC

), whereas the competitive market expands output until price equals marginal cost (

P = MC

Allocative efficiency requires that price equals marginal cost (

P = MC

), which ensures that the value consumers place on the last unit equals the marginal cost of producing it. Perfectly competitive markets achieve this in long-run equilibrium. In contrast, a pure monopolist restricts output to maximize profits where

MR = MC

, resulting in

P > MC

, which causes allocative inefficiency and reduces consumer welfare through deadweight loss.

Adım Adım Çözüm

Identify the condition for allocative efficiency.

Allocative efficiency occurs when resources are allocated such that consumer valuation equals the marginal cost of production, represented by

P = MC

This condition ensures social welfare and total economic surplus are maximized.

Compare market pricing and output decisions in long-run equilibrium.

A perfectly competitive firm sets

P = MR = MC

, resulting in optimal output and zero deadweight loss. A pure monopolist sets

MR = MC

, but because

P > MR

, it charges

P > MC

Because the monopolist charges a price greater than marginal cost, output is restricted below the socially optimal level.

Evaluate the impact on consumer welfare.

The restriction of output under monopoly reduces consumer surplus and creates a deadweight welfare loss.

Consumers pay a higher price and receive less output under monopoly than under perfect competition.

Anahtar Kavram

Comparison of Allocative Efficiency and Consumer Welfare across Market Structures

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