Question

In the long-run a monopoly does not achieve the type of economic efficacy seen in perfect competition. Briefly explain the implication for efficiency.

Answer 1

The long-run Monopoly firm enjoys supper normal profit by reducing the supply of the goods or producing the less than optimum size level of the production and charging the higher price greater than MC.

This situation called failure efficiency of the allocating the resource due to following the reasons.

• Price is greater than MC
• The firm produces the goods less than optimum size hence resource are not properly utilized.

When compare to prefect competation long-run.

• Price=MC
• The firm produces larger output with minimum cost.

This allocation of the resource is more efficient in Perfect Competation than Monopoly firm.