EC120 Lecture Notes - Lecture 5: Perfect Competition, Competitive Equilibrium, Marginal Cost
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Competitive equilibrium is allocatively efficient because it maximizes the sum of consumer and producer surplus. The sum of producer and consumer surplus is maximized only at the perfectly competitive level of output. This is the only level of output that is allocatively efficient. The deadweight loss of monopoly monopoly restricts output and reduces total surplus, thereby imposing a deadweight loss on society. Allocative efficiency and market failure one of the most important issues in public policy is determining the circumstances in which government action can increase the allocative efficiency of market outcomes. Economic regulation to promote efficiency regulation of natural monopolies. Natural monopoly an industry characterized by economies of scale sufficiently large that one firm can most efficiently supply the entire market demand. Crown corporations in canada, business concerns owned by the federal or provincial government. Marginal-cost pricing when a natural monopoly with falling average costs sets price equal to marginal costs, it will suffer losses.