State True or False and justify your answer:

In the long-run, both allocative inefficiency and X-inefficiency might be found in monopoly but not under conditions of pure competition.

The statement is TRUE.

In a perfectly competitive market, the outcome in the long run is both allocatively and productively efficient. This is because, in perfectly competitive market, the price is equal to marginal revenue and average revenue and in the long run, each firm in the market will tend to produce the level of output where the long-run average cost is equal to the price. This is also the point where the long-run average cost is at its minimum level. But in a monopoly, even in the long run, the price is set at a much higher rate than the marginal revenue and marginal cost of the firm. This causes the monopolist to produce much lower level of output than the socially-efficient level and that, too, at a much higher price. In the long run, the monopolist may at least have to earn normal profits but even if it does, the price will not be equal to the minimum level of long-run average cost. Thus, the monopoly output is productively and allocatively inefficient.