Final answer:
The correct option is c. output will be lower and price higher.
In markets lacking competition, economic theory suggests that the output will be lower and the price higher, leading to allocative inefficiency and negative impacts on societal welfare.
Step-by-step explanation:
Relative to a competitive situation, economic theory suggests that if a market lacks competition, output will be lower and price higher. This is due to monopolistic or oligopolistic market structures where firms have more control over the prices they charge, leading to higher prices for consumers. In contrast, in a competitive market, firms produce at a quantity where the price is set equal to marginal cost, leading to allocative efficiency; the benefits to society of providing additional quantity equal the marginal costs of production.
However, when firms have market power, as is the case in less competitive markets, they set the quantity where marginal revenue equals marginal cost, which results in a higher price than marginal cost and thus a smaller quantity produced than would be the case in a competitive market. This leads to allocative inefficiency as the benefits to society exceed the marginal costs to society of producing those units, and society loses the net benefit of those extra units.