Alright now, let's consider the topics of productive efficiency and allocated efficiency monopolistic competition. So what we're going to see is that monopolistic lee competitive firms do not achieve. Do not achieve productive or allocated efficiency. Okay. They're not gonna achieve either of them in perfect competition. We saw that both productive and allocated efficiency were reached. So remember productive efficiency is producing at the lowest possible cost. Okay. And as we've discussed, the condition for productive, productive efficiency is something like price equaling average total cost, right? The minimum of the average total cost. Let me put minimum here. Okay. Um So the lowest possible cost, like we just said, is that minimum of the average total cost curve? Right. And as we saw when we were talking about the long run, right, they don't ever reach the minimum of the average total cost curve because they have that excess capacity. They have the downward sloping demand curve that can only reach average total cost on the downward sloping part of average total cost. Right? That's the only place. It could be tangent. So let's look at a an example here from perfect competition. This is what it looked like, right. We had a firm with this price that was constant, right? There was the price equals average revenue equals marginal revenue. And perfect competition. Right? That was that special case where price equals average revenue and marginal revenue. Well, in the long run we reached the situation where we were producing right here where marginal revenue equals marginal cost and it's also the minimum of the A. T. C. Right? This was the quantity we would produce there and that's at the minimum of our average total cost. So that's how we were productively efficient in perfect competition. But over here in monopolistic competition so I'm gonna scroll up so I'm not in the way monopolistic competition. Well what happened we, in the long run we reach the zero profit point right. Where price equals average total cost. But so right here marginal revenue equals marginal cost, profit maximizing quantity. Right? We've got that quantity. But if we go up to our demand curve and average total cost curve right, we're not at the minimum of average total cost, you can see that average total cost continues decreasing after that right that that next portion is still decreasing. So since we're not at that minimum of average total cost, we're not being as efficient as possible. Right? If we're producing a few more units we would get more economies of scale and have a lower average total cost. So that's not what's happening. We're not being productively efficient. Okay, so what do we see in the long run perfect competition forces firms to produce at minimum A. T. C. But in the long run monopolistic competition firms produce at a quantity before the minimum 80 C. Right. So minimum 80 C. If we go back up to our graph here on the right graph, our minimum 80 C. Was somewhere out here. Right? So this this quantity out here would have been where a perfectly competitive firm quantity in perfect competition. Right? The efficient quantity where, um, in our case, the monopolistic competition m. C. Um, is producing less than that, right? Less than that efficient quantity. Cool, So let's stop here. And in the next video, let's discuss allocated efficiency in monopolistic competition.

Alright. So now let's discuss that idea of allocated efficiency. And remember that allocated efficiency, is that idea that production represents our consumer preferences, Right? So what the consumers want is what is being produced, right? And we're producing the right amount for our consumers. So we saw and our condition here is basically where marginal benefit, right? That marginal benefit to the consumers equals the marginal cost to producers. So we're gonna produce up to the point that marginal benefit equals marginal cost, right? And that's the marginal benefit to consumers and marginal cost to producers. That is where we have allocated efficiency. Well, let's see how we're not reaching allocated efficiency first, let's think about the marginal benefit. The marginal benefit is represented by the demand curve, right? The marginal benefit is coming from the demand curve, that's the benefits that the consumers receive. And the marginal cost. Well, that comes from our marginal cost curve. Right? We have a marginal cost curve on the graph, and that's where that comes from. But firms produce where marginal revenue equals marginal cost, marginal revenue equals marginal cost, That's profit maximizing and that's what they're concerned with. They want to maximize their profit, but that is not where the marginal cost and demand curve intersect, right? If we were gonna find the allocated efficiency point, that's gonna be where the demand curve intersects the marginal cost curve, right? This is the marginal benefit, this is the marginal cost, those would be the the allocated efficiency would be where those cross And if we go back up to our graph here, we're not producing at this quantity, right? Where the demand and the marginal costs are equal. Right? This demand this point, Right here we're demand and marginal costs are equal. Well, that would be the allocated lee efficient quantity, Right? And we're not producing that. We're producing some lower quantity um to increase our profit. Right? So that is why we're not being allocated. Lee efficient there, the marginal benefits to the consumer are still greater than the marginal cost. Right? If we go to our profit maximizing point, the marginal benefit to the consumer is right here on the demand curve, that's the marginal benefit to the consumer, and the marginal cost to the producer is down here to producer. Right? So you can see that that marginal benefit is greater than the marginal cost at that point. So, we should have produced more units if we're being socially efficient there. Alright. So that is why we don't reach productive nor allocated efficiency in monopolistic competition. Alright, so let's go ahead and move on to the next video