Question

Which market structures (that we've studied so far) lead to productive and allocative efficiency? A. All market structures lead to productive efficiency, and perfect competition and monopolistic competition lead to allocative efficiency. B. All market structures lead to productive efficiency, and perfect competition leads to allocative efficiency. C. All market structures lead to productive efficiency, and perfect competition and oligopoly lead to allocative efficiency. D. All market structures lead to productive efficiency, and oligopoly leads to allocative efficiency. E. Perfect competition and monopolistic competition lead to productive efficiency, and perfect competition leads to allocative efficiency. types of buyers in a market. There are 100 buyers of each type and each buyer buys one unit per period. The willingness to pay equals $12, $10, $8, and $6 for buyer types 1,2 , 3 , and 4 , respectively. Total economic surplus at the efficient level of output equals A. 2100 . B. 1800 . C. 1500 . D. 2000 . E. 2200 . ich of the following describes the experiences many regulators have had in preventing natural monopolies from charging profit-maximizing prices? A. Preventing profit maximization reduces the incentive for investment and innovation. B. The opportunity cost of government resources used to monitor regulated firms has been minimal. C. When regulating a normal rate of return, regulators have not had to worry about inefficient operation. D. Regulators have had sufficient data to determine demand and cost curves to use in setting price. The objective of Canadian competition policy is A. to improve profits of Canadian firms by restricting foreign competition. B. to give consumers more information about the differences between similar products. C. to subsidize Canadian firms so they can compete in world markets. D. to prevent unnecessary mergers and collusive practices. E. to encourage firms to make price-fixing agreements if they can increase profits by doing so

Answer 1

Perfect competition leads to both productive and allocative efficiency in long-run equilibrium, unlike other market structures. For total economic surplus calculation, it involves adding up consumer surpluses at efficient output. Canadian competition policy aims to maintain competitive markets, preventing anti-competitive behaviors such as unnecessary mergers and collusion.

Step-by-step explanation:

Regarding which market structures lead to productive and allocative efficiency, it is well-established that perfect competition leads to both productive and allocative efficiency in the long-run equilibrium. This is because, in a perfectly competitive market, firms produce at the minimum average total cost and charge a price equal to marginal cost.

Productive efficiency implies producing goods at the lowest possible cost, while allocative efficiency means producing the optimal mix of goods according to consumer preferences, where the price equals marginal cost. Therefore, none of the other market structures such as monopolistic competition, monopoly, or oligopoly reach both productive and allocative efficiency in the way perfect competition does.

Answering the question regarding market structures, we can confidently choose option B: 'All market structures lead to productive efficiency, and perfect competition leads to allocative efficiency.' Although all structures may strive for productive efficiency, they may not necessarily achieve it, as many may not produce at the minimum of average total costs.

Total economic surplus at the efficient level of output is the sum of consumer and producer surplus. To calculate this, consider the differences between the willingness to pay and the market price for each buyer type at the efficient output. If efficient output implies no deadweight loss, total surplus can be calculated as the sum of the consumer surpluses for each buyer.

Regarding regulators' experiences with natural monopolies, many have noticed that preventing profit maximization may indeed lower the incentive for investment and innovation, leading to option A: 'Preventing profit maximization reduces the incentive for investment and innovation.' This recognizes one of the main criticisms of regulation.

The objective of Canadian competition policy is focused on maintaining competitive markets for the benefit of consumers. Option D: 'to prevent unnecessary mergers and collusive practices' accurately reflects this intention.