Monday, December 18, 2006

Study Hints for Final Exam

If I were you, I would be focusing on allocative efficiency and productive efficiency.

It is key to keep in mind that only under perfect competition is allocative efficiency (P=MC) and productive efficiency {min(ATC)} easily achieved.

In other markets, since some form of market imperfection exists (differentiated products, barriers to entry, small number of sellers, whatever) price does not necessarily equal marginal cost and ATC is not necessarily minimized.

Whether the government needs to step in and fix the problem, however, is another question, since the problem may be very small and may yield external benefits (in the form of product differentiation.)

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