Average- cost pricing is inefficient for monopolists because it:
A)may induce production where price is not equal to MC.
B)provides an incentive to minimize costs of production.
C)requires that all consumers pay the same price.
D)does not allow a fair rate of return.

Question

Quizplus · Accepted Answer

Average-cost pricing may induce a monopolist to produce at a level where price is not equal to marginal cost, which is inefficient. This leads to deadweight loss, reducing consumer surplus and total welfare. Therefore, monopolists should aim to produce where marginal revenue equals marginal cost, which would maximize their profits and overall welfare.

Average- Cost Pricing Is Inefficient for Monopolists Because It