Question

1. Explain the following terms a)allocative efficiency and b) productive efficiency

2. Of the 4 markets discussed, which market structure can achieve allocative and productive efficiency in the long run

3. Which market structure can have both homogeneous and differentiated products

4. Describe the characteristics of a pure monopoly

5. What are the benefits of monopolistic competition?

6. Please explain how shut-down rule is applied.

7. Discuss the major barriers to entry into an industry

8. What is the meaning of a four-firm concentration ratio of 60 percent? 90 percent?

9.

use the diagram above and explain if both companies collude, what is price it will charge?  

Answer 1

1.

A) Allocative efficiency

The word allocation means distributing goods and services. On the other hand, the word efficiency means in the best possible way.

Thus Allocative efficiency is when the goods and services are allocated in the best possible way making it an efficient market. The point of Allocative efficiency for a product is at the intersection of the demand and supply curves.

B) productive efficiency

It is also called production efficiency. It is when an economy can not produce additional amount of goods without lowering the production level of the other goods. It implies that the firm is operating at it's maximum capacity at which all the resources are being utilized to the fullest in order to generate the most cost efficient product as possible.