SOLVED:A well-recognized problem in industrial organization and welfare economics is allocative efficiency with a natural monopoly. A natural monopoly is a firm characterized by a large nonconvexity in the production technology, hence displaying (weakly) declining marginal costs throughout the relevant range of output levels. An efficient allocation will typically include only one firm active in this market (hence it has a monopoly). Marginal cost pricing (generally characterizing an efficient m

Understanding Economic Efficiency: Key Definitions and Examples