Multiple Choice QuestionBecause a monopoly is a price maker and prices its products in the elastic portion of the demand curve, its output is less than that required to achieve minimum average total cost. In addition, the monopoly's price will exceed its marginal cost at this level of output. Monopoly therefore createsMultiple choice question.greater efficiency.a revenue loss.a marginal loss.an efficiency loss.
Question
Multiple Choice QuestionBecause a monopoly is a price maker and prices its products in the elastic portion of the demand curve, its output is less than that required to achieve minimum average total cost. In addition, the monopoly's price will exceed its marginal cost at this level of output. Monopoly therefore createsMultiple choice question.greater efficiency.a revenue loss.a marginal loss.an efficiency loss.
Solution
The correct answer is "an efficiency loss."
Here's why:
A monopoly is a single seller in a market. Because of this, it has the power to control the price of its product. It does this by producing less than what would be produced in a competitive market. This is where the inefficiency comes in.
In a competitive market, firms produce up to the point where price equals marginal cost. This is the point of allocative efficiency, where resources are allocated in the most efficient way from the society's point of view.
However, a monopoly sets its price above marginal cost. This means that there are consumers who value the product more than it costs to produce, but they are not getting it. This is a loss of allocative efficiency, or in other words, an efficiency loss.
Therefore, the correct answer is "an efficiency loss."
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