Monopoly - Allocative efficiency/Productive efficiency 0.0 / 5 ? Business ManagementMonopolyUniversityAQA Created by: tobillias42Created on: 06-01-19 18:02 What is Allocative Efficiency? A state in an economy where production represents consumer preferences. Marginal benefit to consumer = Marginal cost to producer. 1 of 15 What is Consumer Surplus? The difference between the value to buyers and the amount they would pay. Welfare gain. 2 of 15 What is Producer Surplus? The difference between the cost to consumers and the cost to produce the good. Welfare producers gain from the market. 3 of 15 Allocative efficiency is achieved when? Consumer Surplus = Producer Surplus 4 of 15 What 3 curves are in the diagram? MR, AR, LRMC=LRAC 5 of 15 Which area shows a consumer surplus under a monopoly? Area A. 6 of 15 Which area shows shows producer surplus/monopolists revenue? Area B 7 of 15 Area A+B+C shows what? Total Surplus, consumer surplus under competitive conditions. 8 of 15 Area B shows? Welfare transfer from consumers to producers. 9 of 15 Area C shows? Welfare loss due to higher prices and lower output under a monopoly. 10 of 15 what is allocative inefficiency? When Marginal Revenue > Marginal Cost. 11 of 15 Where is a deadweight welfare loss present? Under a monopoly. Not under perfect competition. 12 of 15 What is X-innificiency? Where monopolists don't face competition there are no pressures to minimise costs. Produce at LRAC2 not LRAC2 like perfectly competitive firms. 13 of 15 What arguments are there for monopolies being efficient? Benefit from economies of scale. May need to maintain low costs to keep competition away. Welfare gain from productive efficiency. 14 of 15 What are the net welfare effects? Allocative efficiency - welfare loss. Productive efficiency - argument for both welfare gain/loss. 15 of 15
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