monopolist will operate on its LRAC curve, and will therefore be
productively efficient. Since the firm is alone in the industry, it
follows that the industry is also productively efficient.
For a profit-maximizing monopolist, price is greater than marginal
cost. The marginal value to consumers therefore exceeds the marginal
cost of production, and so monopoly is not allocatively efficient.Monopolistic Competition and Oligopoly
Monopolistic competitors and oligopolists maximize their profits
when they adopt the lowest-cost method of production. Profit-
maximizing firms in each of these market structures operate on their
LRAC curves and are therefore productively efficient.
It is not possible to say whether the industry in either of these market
structures will be productively efficient. Since these firms sell
differentiated products and there is no single industry-wide price, it is
impossible to conclude that marginal costs will be equated across all
firms.
For both oligopoly and monopolistic competition, price exceeds
marginal cost, so neither market structure is allocatively efficient. For
oligopoly, however, there are some situations where rivalry between
firms drives price toward marginal cost, improving efficiency.In summary, profit-maximizing firms are productively efficient, no matter
what market structure they operate within. As for allocative efficiency, we
can say that perfect competition is more compatible with allocative
efficiency than are other market structures. The more imperfect