Economics Perfect Competition Questions
Allocative efficiency refers to the optimal allocation of resources in an economy, where resources are allocated in a way that maximizes overall social welfare. In a monopoly, allocative efficiency is not achieved because the monopolistic firm restricts output and charges a higher price than what would prevail under perfect competition. This leads to a misallocation of resources, as the monopolist produces less output at a higher price, resulting in a deadweight loss to society. Therefore, in a monopoly, allocative efficiency is not achieved as the monopolist does not produce at the point where marginal cost equals marginal benefit, which is the condition for allocative efficiency.