Asked by breana norris on May 16, 2024
Verified
Monopolists are said to be allocatively inefficient because
A) they produce where MR > MC.
B) at the profit-maximizing output, price is greater than AVC.
C) they produce only the type of product they desire and do not consider the consumer.
D) at the profit-maximizing output, the marginal benefit of the product to society exceeds its marginal cost.
Allocatively Inefficient
A situation where resources are not distributed in a way that maximizes the benefits to society, often leading to a loss of economic welfare.
Marginal Benefit
The additional satisfaction or utility gained from receiving or consuming one more unit of a good or service.
Marginal Cost
The cost of producing one additional unit of a product or service, a key concept in economic theory for decision-making and pricing.
- Examine the repercussions of monopolistic control on the welfare of the consumers and the efficiency of market mechanisms.
Verified Answer
TA
Torin AschleMay 20, 2024
Final Answer :
D
Explanation :
Monopolists are considered allocatively inefficient because they set a price higher than the marginal cost (MC) at their profit-maximizing output level. This means that the price consumers pay is more than the cost of producing one more unit of the product, leading to a situation where the marginal benefit to society (reflected in their willingness to pay) is greater than the marginal cost of producing the product. This discrepancy indicates that resources are not being allocated in a way that maximizes total welfare in the economy.
Learning Objectives
- Examine the repercussions of monopolistic control on the welfare of the consumers and the efficiency of market mechanisms.