Question

Which firm will have a more efficient equilibrium, perfect competitive firm or monopolistic? Why?

Answer 1

Perfect competitive firm will have more efficient equilibrium. The reason being that perfectly competitive firm produces allocatively and productively efficient output. The firm in perfectly competitive firm produce at the minimum of average total cost of production. There is also no excess capacity in the perfectly competitive market equilibrium. The price charged by the perfectly competitive market gives maximum consumer surplus unlike monopoly which eats away the consumer surplus and also creates a deadweight loss.