Asked by Tshepo Faith on May 16, 2024
Verified
If a monopolist's profits were taxed away and redistributed to its consumers,
A) inefficiency would remain because output would be lower than under competitive conditions.
B) inefficiency would remain, but not because output would be lower than under competitive conditions.
C) efficiency would be obtained because output would be increased to the competitive level.
D) efficiency would be obtained because output would be increased and profits removed.
Monopolist's Profits
The excess earnings a monopolist obtains over what it would earn in a competitive market due to its market power.
Competitive Conditions
The characteristics of a market environment that influence the level of competition between businesses, including the number of competitors, product differentiation, and barriers to entry.
Inefficiency
A situation in which resources are not used in the most productive way, leading to wasted inputs or suboptimal output.
- Understand the concept of monopoly and its impact on market efficiency.
- Analyze the effect of monopoly pricing on consumer and producer surplus.
Verified Answer
SB
Shaina BrunacheMay 17, 2024
Final Answer :
A
Explanation :
Taxing a monopolist's profits and redistributing them to consumers does not address the primary source of inefficiency in a monopoly, which is the reduced output compared to what would be produced in a competitive market. The monopolist still has no incentive to increase output to the competitive level, so inefficiency remains due to lower output.
Learning Objectives
- Understand the concept of monopoly and its impact on market efficiency.
- Analyze the effect of monopoly pricing on consumer and producer surplus.