Monopoly Graph A monopolist will seek to maximise profits by setting output where MR = MC This will be at output Qm and Price Pm. Compared to a competitive market, the monopolist increases price and reduces output Red area = Supernormal Profit (AR-AC) * Q Blue area = Deadweight welfare loss (combined loss of producer …
Summary: Productive efficiency is concerned with the optimal method of producing goods; producing goods at the lowest cost. Allocative efficiency is concerned with the optimal distribution of goods and services. Example: An economy could be productively efficient in producing large numbers of boots – but if they were all for the left foot, it would …
Readers Question: What is the role and function of price in the economy? The price of goods plays a crucial role in determining an efficient distribution of resources in a market system. Price acts as a signal for shortages and surpluses which help firms and consumers respond to changing market conditions. If a good is …