Economic efficiency means resources are allocated in a manner that their marginal product in all lines of production is the same. This happens when in all industries and firms P = MC. Since under perfect completion P = MC, it means that marginal cost of using resources is equal to the consumers’ valuation of the product. Thus resource allocation is efficient and firms produce their capacity level of output.
However, under monopoly and imperfect competition, the price is more than the marginal cost. Price being higher than MC denotes that consumers’ valuation of the good is higher than what it costs to produce, but production is being restricted and consumer denied the satisfaction of additional use of the good. This happens because of the excess capacity became the firm’s restrict output to raise prices and make profits. This inefficiency in resource allocation is more under monopoly than under monopolistic competition.SUBMIT ASSIGNMENT NOW!